---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-K

x ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal
Year Ended December 29, 2007  Or


o TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition
period from _____________ to _____________


Commission
File Number 0-6966

ESCALADE,
INCORPORATED


---

(Exact name of registrant as specified in its charter)


|                           |             
|-------------------------- | ------------
|Indiana                    | 13-2739290  
|(State of
  incorporation) | (I.R.S. EIN)



|                                          |           
|----------------------------------------- | ----------
|817 Maxwell Ave, Evansville,
  Indiana    | 47711     
|(Address of Principal
  Executive Office) | (Zip Code)

812-467-1334(Registrants Telephone Number)

Securities
registered pursuant to Section 12(b) of the Act

|                             |                                         
|---------------------------- | ----------------------------------------
|Common Stock, No Par
  Value | The NASDAQ Stock Market
  LLC           
|(Title of Class)             | (Name of Exchange on
  Which Registered)

Securities
registered pursuant to section 12(g) of the Act: NONE

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities
Yes o No x

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act
Yes o No x

Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.

|                            |                       |                          
|--------------------------- | --------------------- | -------------------------
|Large
  accelerated filer o | Accelerated
  filer x | Non-accelerated
  filer o

Indicate by checkmark whether the
registrant is a shell company (as defined in Rule 12 b-2 of the Exchange Act).
Yes o No x

Aggregate market value of common
stock held by nonaffiliates of the registrant as of July 14, 2007 based on the
closing sale price as reported on the NASDAQ Global Market: $83,606,793

The number of shares of
Registrants common stock (no par value) outstanding as of February 22, 2008:
12,679,986

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the
registrants Proxy Statement relating to its annual meeting of stockholders
scheduled to be held on April 25, 2008 are
incorporated by reference into Part III of this Report.

---



ESCALADE, INCORPORATED AND SUBSIDIARIES

Table
of Contents

|           |                                                                                                    |     
|---------- | -------------------------------------------------------------------------------------------------- | ----
|           |                                                                                                    | Page
|           |                                                                                                    |     
|Part I     |                                                                                                    |     
|Item
  1.  | Business                                                                                           | 3   
|Item
  1A. | Risk
  Factors                                                                                     | 6   
|Item
  1B. | Unresolved
  Staff Comments                                                                        | 9   
|Item
  2.  | Properties                                                                                         | 10  
|Item
  3.  | Legal
  Proceedings                                                                                | 10  
|Item
  4.  | Submission
  of Matters to a Vote of Security Holders                                              | 10  
|           |                                                                                                    |     
|Part II    |                                                                                                    |     
|Item
  5.  | Market
  for the Registrants Common Equity and Related Stockholder Matters                        | 11  
|Item
  6.  | Selected
  Financial Data                                                                          | 14  
|Item
  7.  | Managements
  Discussion and Analysis of Financial Condition and Results of Operations            | 14  
|Item
  7A. | Quantitative
  and Qualitative Disclosures About Market Risk                                       | 20  
|Item
  8.  | Financial
  Statements and Supplementary Data                                                      | 21  
|Item
  9.  | Changes
  in and Disagreements with Accountants on Accounting and Financial Disclosure             | 21  
|Item
  9A. | Controls
  and Procedures                                                                          | 21  
|Item
  9B. | Other
  Information                                                                                | 24  
|           |                                                                                                    |     
|Part III   |                                                                                                    |     
|Item
  10. | Directors,
  Executive Officers and Corporate Governance                                           | 24  
|Item
  11. | Executive
  Compensation                                                                           | 25  
|Item
  12. | Security
  Ownership of Certain Beneficial Owners and Management and Related Stockholder
  Matters | 25  
|Item
  13. | Certain
  Relationships and Related Transactions                                                   | 25  
|Item
  14. | Principal
  Accountant Fees and Services                                                           | 25  
|           |                                                                                                    |     
|Part IV    |                                                                                                    |     
|Item
  15. | Exhibits
  and Financial Statement Schedules                                                       | 26  

2

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Part I

ITEM 1  BUSINESS

General

Escalade,
Incorporated (Escalade or Company) operates in two business segments:
sporting goods and office products. Escalade and its predecessors have more
than 75 years of manufacturing and selling experience in these two industries.

The following
table presents the percentages contributed to Escalades net sales by each of
its business segments:

|                      |  |  |      |     |   |      |  |  |      |   |  |  |  |     |   | 
|--------------------- |  |  | ---- | --- | - | ---- |  |  | ---- | - |  |  |  | --- | - | 
|                      |  |  | 2007 |     |   | 2006 |  |  | 2005 |  
|                     
|                     
|Sporting
  goods      |  |  |      | 70  | % |      |  |  | 71   | % |  |  |  | 66  | % | 
|Office/graphic
  arts |  |  |      | 30  | % |      |  |  | 29   | % |  |  |  | 34  | % | 
|                      |  |  |      |     |   |      |  |  |      |   |  |  |  |     |   | 
|Total net
  sales     |  |  |      | 100 | % |      |  |  | 100  | % |  |  |  | 100 | % | 
|                      |  |  |      |     |   |      |  |  |      |   |  |  |  |     |   | 

For additional
segment information, see Note 13  Operating Segment and Geographic Information
in the consolidated financial statements.

Sporting Goods

Headquartered
in Evansville, Indiana, Escalade Sports manufactures and distributes widely
recognized brands in family game room and outdoor sporting goods products
through traditional department stores, mass merchandise retailers, and sporting
goods specific retailers. Escalade is the worlds largest producer of table
tennis tables and the worlds largest unit producer of pool tables in the
United States. Some of the Companys most recognized brands include:

|                                  |                                                                     
|--------------------------------- | --------------------------------------------------------------------
|Product
Segment                   | Brand Names                                                         
|                                  |                                                                     
|Table Tennis                      | Ping-Pong®,
  STIGA®                                                
|Pool Tables
  and Accessories     | Mizerak,
  Murrey®, Mosconi, Black Widow                         
|Basketball
  Backboards and Goals | Goalrilla,
  Goaliath®, Silverback                                
|Game Tables
  (Hockey and Soccer) | Harvard
  Game®, Rhino, Murrey Game                               
|Archery                           | Fred Bear®,
  Indian Archery®, Jennings®, Carolina Archery Products®
|Fitness                           | The STEP®,
  USWeight                                              
|Play Systems                      | ChildLife®,
  Woodplay®                                             

The largest
sporting goods customer is Sears Holdings Corporation (Sears), which
accounted for 26%, 30% and 33% of total sporting goods revenues in 2007, 2006
and 2005, respectively. On a consolidated basis, Sears accounted for 18%, 19%
and 22% of Escalade revenues in 2007, 2006 and 2005, respectively. Escalade
Sports has been a preferred supplier of sporting goods products to Sears for
more than 30 years, winning numerous awards for delivering outstanding products
and service. Although the Company has a long-term supplier relationship with
Sears, it does not have any long-term supplier contracts with Sears. Sales to
Sears have been declining in recent years, and the Company expects continued
declines into the foreseeable future. The Company cannot provide any assurance
that Sears will continue to be a significant customer in the future.

Escalade
Sports manufactures in the U.S.A. and Mexico; and imports product from China,
where the Company employs a number of contract manufacturers.

Certain
products produced by Escalade Sports are subject to regulation by the Consumer
Product Safety Commission. The Company believes it is in full compliance with
all applicable regulations.

3

---



Office Products

Operating as
Martin Yale, the office products business has a worldwide presence with
manufacturing facilities in North America and Europe. Besides the sales offices
located at each manufacturing plant, Martin Yale has sales offices in the
United Kingdom, France, Spain and China.

Martin Yale
products include: data shredders, paper trimmers, paper folding machines, paper
drills, collators, bursting machines, letter openers, and office related
products such as keyboard drawers and paper hole punches. Martin Yale brands
include Martin Yale, Premier®, Master, Mead Hatcher, Intimus®, and Paper
Monster®.

Martin Yale
products are sold throughout office products retailers, wholesalers and catalog
distributors. No single Martin Yale customer accounted for more than 10% of
Office Product sales during 2007.

Marketing and Product Development

In both the
sporting goods and office product business segments, Escalade has rigorously
developed strategic plans to enhance and promote product branding. The Company
constantly evaluates the quality-to-price paradigm of its customers, and then
designs and redesigns its products to achieve the best fit. Marketing efforts
are then initiated through its retail partners in the form of advertising and
other promotion allowances. In general, the Company does not directly advertise
to end-users.

In order to
meet customer needs, each operating segment conducts its own independent
research and development efforts to design new products and enhance already
existing products. On a consolidated basis, the Company incurred research and
development costs of approximately $2.3 million, $2.2 million and $2.0 million
in 2007, 2006 and 2005, respectively.

Competition

Escalade is
subject to competition with various manufacturers in each product line produced
or sold by Escalade. The Company is not aware of any other single company that
is engaged in both the same industries as Escalade or that produces the same
range of products as Escalade within such industries. Nonetheless, competition
exists for many Escalade products within both the sporting goods and office
product industries and some competitors are larger and have substantially
greater resources than the Company. Escalade believes that its long-term
success depends on its ability to strengthen its relationship with existing
customers, attract new customers and develop new products that satisfy the
quality and price requirements of sporting goods and office product customers.

Licenses, Trademarks and Brand Names

The Company
has an agreement and contract with Sweden Table Tennis AB for the exclusive
right and license to distribute and produce table tennis equipment under the
brand name STIGA® for the United States and Canada. The company also owns
several registered trademarks and brand names including but not limited to
Ping-Pong®, Fred Bear®, Goalrillaä,
The Step®, and Wood Play® which are used in the Sporting Goods business segment
and Premier® and Intimus® which are used in the Office Products business
segment.

Backlog and Seasonality

Sales are
based primarily on standard purchase orders and in most cases orders are
shipped within the same month received. Unshipped orders at the end of the
fiscal year (backlog), were not material, and therefore not an indicator of
future results. Consumer demand for sporting goods is seasonal and driven by
holiday season demand. Over the past three years approximately 58% of sporting
goods sales came in the second half of the year. The Company expects sporting
goods sales to continue to be seasonal in the future. Demand for Office
Products has not been seasonal and is not expected to be so in the future.

4

---



Employees

The number of
employees at December 29, 2007 and December 30, 2006 for each business segment
were as follows:

|                      |  |  |      |  |  |      | 
|--------------------- |  |  | ---- |  |  | ---- | 
|                      |  |  | 2007 |  |  | 2006 | 
|                      | 
|Sporting
  Goods      |  |  |      |  |  |      | 
|USA                   |  |  | 475  |  |  | 460  | 
|Mexico                |  |  | 149  |  |  | 169  | 
|                      |  |  |      |  |  |      | 
|                      |  |  | 624  |  |  | 629  | 
|                      |  |  |      |  |  |      | 
|Office/Graphic
  Arts |  |  |      |  |  |      | 
|USA                   |  |  | 111  |  |  | 117  | 
|Europe                |  |  | 115  |  |  | 136  | 
|Asia                  |  |  | 14   |  |  | 9    | 
|                      |  |  |      |  |  |      | 
|                      |  |  | 240  |  |  | 262  | 
|                      |  |  |      |  |  |      | 
|Total                 |  |  | 864  |  |  | 891  | 
|                      |  |  |      |  |  |      | 

The
International Union of Electronic, Electrical, Salaried, Machine and Furniture
Workers AFL-CIO represent hourly rated employees at the Escalade Sports
Evansville, Indiana factory; approximately 120 employees at December 29, 2007.
A 3-year labor contract was negotiated and renewed in April 2006; the new
agreement expires on April 30, 2009. Management believes it has satisfactory
relations with its employees.

Sources of Supplies

Raw materials
for Escalades various product lines consist of wood, steel, plastics,
fiberglass and packaging. Escalade relies upon suppliers in various countries
and upon various third party Asian manufacturers for certain of its game tables
and non-security paper shredders. The Company believes that these sources will
continue to provide adequate supplies as needed and that all other materials
needed for the Companys various operations are available in adequate
quantities from a variety of domestic and foreign sources.

SEC Reports

The Companys
internet site (www.escaladeinc.com) makes available free of charge to all
interested parties the Companys annual report on Form 10-K, quarterly reports
on Form 10-Q, and current reports on Form 8-K, and all amendments to those
reports, as well as all other reports and schedules filed electronically with
the Securities and Exchange Commission (the Commission), as soon as
reasonably practicable after such material is electronically filed with or
furnished to the Commission. Interested parties may also find reports, proxy
and information statements and other information on issuers that file
electronically with the Commission at the Commissions internet site
(http://www.sec.gov).

5

---



ITEM 1A  RISK FACTORS

Failure to improve and maintain
the quality of internal controls over financial reporting could materially and
adversely affect the Companys ability to provide timely and accurate financial
information about the Company, which could harm the Companys reputation and
share price.

The Companys Management is
responsible for establishing and maintaining adequate internal controls over
financial reporting for the Company to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements in accordance with generally accepted accounting principles.
Management cannot be certain that weaknesses and deficiencies in the Companys
internal controls will not arise or be identified or that the Company will be
able to correct and maintain adequate controls over financial processes and
reporting in the future. Any failure to maintain adequate controls or to
adequately implement required new or improved controls could harm operating
results or cause failure to meet reporting obligations in a timely and accurate
manner. Ineffective internal controls over financial reporting could also cause
investors to lose confidence in the Companys reported financial information,
which could adversely affect the trading price of the Companys common stock.

The Companys disclosure
controls and procedures are designed to provide reasonable assurance of
achieving their objectives. However, Management, including the Chief Executive
Officer and Chief Financial Officer, do not expect that disclosure controls and
procedures will prevent all errors and all fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances
of fraud, if any, have been detected.

Our markets are
highly competitive and we may not continue to compete successfully.

The sporting goods and
office products markets are highly competitive. We compete with a variety of
regional, national and international manufacturers for customers, employees,
products, services and other important aspects of our business. Some of our
current and potential competitors are larger than we are and have substantially
greater financial resources that may be devoted to sourcing, promoting and
selling their products. It is possible that increased competition or improved
performance by our competitors may reduce our market share, profit margin and
projected operating results, and may adversely affect our business and
financial performance in other ways.

A large portion
of our sales are to a major customer, the loss of which could have a material
adverse impact on the Company.

Sears is our largest
customer and accounted for 18%, 19% and 22% of our total consolidated revenues
in 2007, 2006 and 2005, respectively. Although the Company has been a preferred
supplier of sporting goods products to Sears for more than 30 years and has won
numerous awards from Sears for delivering outstanding products and services,
the Company has never had a long-term supplier contract with Sears and does not
expect to obtain any such contract in the future. In addition, the Company has
no control over decisions made by Sears as Sears reshapes its product mix and
positioning in the consumer market in ways that have adversely affected our sales
to Sears. The Company currently expects that sales to Sears in 2008 will
decline significantly and that sales to Sears may further diminish thereafter.
The Company cannot provide any assurance that Sears will continue to be a
significant customer.

Our business is
seasonal and our annual results are dependent on the success of our second half
sales.

Our Sporting Goods business
is seasonal in nature with the highest sales and operating income historically
occurring during the third and fourth fiscal quarters due largely to the
holiday selling season. In 2007, approximately 58% of our sporting goods sales
came in the second half of the year. Any decrease in our second half sales,
whether because of a slow holiday selling season or otherwise, could have a material
adverse effect on our business, financial condition and operating results for
the entire fiscal year.

6

---



We may pursue
strategic acquisitions, which could have an adverse impact on our business.

We may from time to time
acquire complementary companies or businesses. Acquisitions may result in
difficulties in assimilating acquired companies, and may result in the
diversion of our capital and our managements attention from other business
issues and opportunities. We may not be able to successfully integrate
operations that we acquire, including their personnel, financial systems,
distribution, and operating procedures. If we fail to successfully integrate
acquisitions, our business could suffer. In addition, the integration of any
acquired business, and their financial results, into ours may adversely affect
our operating results. We expect to do additional acquisitions in the future,
but we currently do not have any agreements with respect to any such
acquisitions.

Our ability to
expand our business will be dependent upon the availability of adequate
capital.

The rate of our expansion
will also depend on the availability of adequate capital, which in turn will
depend in large part on cash flow generated by our business and the
availability of equity and debt capital. We cannot assure you that we will be
able to obtain equity or debt capital on acceptable terms or at all.

Our growth may
strain our resources, which could adversely affect our business and financial
performance.

Both our sporting goods and
office products businesses have grown over the past several years through
strategic acquisitions. Our growth places additional demands on our management
and our operational systems. If we are not successful in continuing to support
our operational and financial systems, expanding our management team and
increasing and effectively managing our customers and suppliers, our growth may
result in operational inefficiencies and ineffective management of the
business, which could adversely affect our business and financial performance.

Our expanding
international operations expose us to the unique risks inherent in foreign
operations.

We have operations in Mexico
and Europe, and rely on Asian suppliers for various raw materials and products.
Our foreign operations encounter risks similar to those faced by our U.S.
operations, as well as risks inherent in foreign operations, such as local
customs and regulatory constraints, control over product quality and content,
foreign trade policies, competitive conditions, foreign currency fluctuations
and unstable political and economic conditions. Our 2003 acquisition of
Schleicher and Company, International AG in Germany and our business
relationships in Asia have increased our exposure to these foreign operating
risks, which could have an adverse impact on our international income and
worldwide profitability.

Our business may
be adversely affected by the actions of and risks associated with our
third-party suppliers.

The raw materials that we
purchase for our own manufacturing operations and many of the products that we
sell are sourced from a wide variety of third-party suppliers. We cannot
control the supply, design, function or cost of many of the products that we
offer for sale and are dependent on the availability and pricing of key
materials and products. Disruptions in the availability of raw materials used
in production of these products may adversely affect our sales and result in
customer dissatisfaction. In addition, global sourcing of many of the products
we sell is an important factor in our financial performance. Our ability to
find qualified suppliers and access products in a timely and efficient manner
is a significant challenge, especially with respect to goods sourced outside
the United States. Political instability, the financial instability of
suppliers, merchandise quality issues, trade restrictions, tariffs, currency
exchange rates, transport capacity and costs, inflation and other factors
relating to foreign trade are beyond our control.

7

---



Historically, instability in
the political and economic environments of the countries in which we or our
suppliers obtain products and raw materials has not had a material adverse
effect on our operations. However, we cannot predict the effect that future
changes in economic or political conditions in such foreign countries may have
on our operations. In the event of disruptions or delays in supply due to
economic or political conditions in foreign countries, such disruptions or
delays could adversely affect our results of operations unless and until
alternative supply arrangements could be made. In addition, products and
materials purchased from alternative sources may be of lesser quality or more
expensive than the products and materials we currently purchase abroad.

These and other issues
affecting our suppliers could adversely affect our business and financial
performance.

Deterioration in
our relationships with our suppliers or in the financial condition of our
suppliers could adversely affect our liquidity, financial position and results
of operations.



Access to materials, parts
and supplies is dependent upon close relationships with our suppliers and our
ability to purchase products from our principal suppliers on competitive terms.
We do not enter into long-term supply contracts with these suppliers, and we
have no current plans to do so in the future. These suppliers are not required
to sell to us and are free to change the prices and other terms at which they
sell to us. Any deterioration or change in our relationships with, or in the
financial condition of our significant suppliers, could have an adverse impact
on our ability to procure materials and parts necessary to produce products for
sale and distribution. If one of these suppliers terminated or significantly
curtailed its relationship with us, or if one of these suppliers ceased
operations, we would be forced to expand our relationship with other suppliers,
seek out new relationships with other suppliers or risk a loss in market share
due to diminished product offerings and availability. Any change in one or more
of these suppliers willingness or ability to continue to supply us with their
products could have an adverse impact on our liquidity, financial position and
results of operations.

Our quarterly
operating results are subject to fluctuation.

Our operating results have
fluctuated from quarter to quarter in the past, and we expect that they will
continue to do so in the future. Our earnings may not continue to grow at rates
similar to the growth rates achieved in recent years and may fall short of
either a prior fiscal period or market expectations. Factors that could cause
these quarterly fluctuations include the following: international, national and
local general economic and market conditions; the size and growth of the
overall sporting goods and office products markets; intense competition among
manufacturers, marketers, distributors and sellers of our products; demographic
changes; changes in consumer preferences; popularity of particular designs,
categories of products and sports; seasonal demand for our products; the size,
timing and mix of purchases of our products; fluctuations and difficulty in
forecasting operating results; our ability to sustain, manage or forecast our
growth and inventories; new product development and introduction; our ability
to secure and protect trademarks, patents and other intellectual property;
performance and reliability of our products; our customer service; the loss of
significant customers or suppliers; our dependence on distributors; business
disruptions; increased costs of freight and transportation to meet delivery
deadlines; changes in our business strategy or development plans; general risks
associated with doing business outside the United States, including, without
limitation: exchange rates, import duties, tariffs, quotas and political and
economic instability; changes in government regulations; any liability and
other claims asserted against us; our ability to attract and retain qualified
personnel; and other factors referenced or incorporated by reference in this
Form 10-K and any other filings with the Securities and Exchange Commission.

Our operating
results may be impacted by changes in the economy that impact business and
consumer spending.

In general, our sales depend
on discretionary spending by our customers. A deterioration of current economic
conditions or an economic downturn in any of our major markets or in general
could result in declines in sales and impair our growth. Accordingly, our operating
results are directly impacted by the health of the North American, European and
Asian economies. Our business and financial performance may be adversely
affected by current and future economic conditions, including unemployment
levels, energy costs, interest rates, recession, inflation, the impact of
natural disasters and terrorist activities, and other matters that influence
business and consumer spending.

8

---



Our failure to
improve our operational efficiency and reduce our administrative costs could
have a material adverse effect on our liquidity, financial position and results
of operations.



Our ability to improve our
profit margins is largely dependent on the success of our initiatives to
streamline our infrastructure, improve our operational efficiency and the
reduction of administrative costs at every level of the Company. Our failure to
implement these initiatives successfully, or the failure of such initiatives to
result in improved profitability, could have a material adverse effect on our liquidity,
financial position and results of operations.

Our stock price
may fluctuate based on market expectations.

The public trading of our
stock is based in large part on market expectations that our business will
continue to grow and that we will achieve certain levels of net income. If our
quarterly financial performance does not meet market expectations, our stock
price would likely decline. Any decrease in our stock price may be
disproportionate to any shortfall in our financial performance.

Our intellectual
property rights are valuable, and any inability to protect them could reduce
the value of our products.

We obtain patents,
trademarks and copyrights for our intellectual property, which represent
important assets to the Company. If we fail to adequately protect our
intellectual property through patents, trademarks and copyrights, our
intellectual property rights may be misappropriated by others, invalidated or
challenged, and our competitors could duplicate our products or may otherwise
limit any competitive design or manufacturing advantages we may have. We
believe that our success is likely to depend upon continued innovation,
technical expertise, marketing skills and customer support and services rather
than on legal protection of our intellectual property rights. However, we
intend to aggressively assert our intellectual property rights when necessary.

We may be subject
to product liability claims and our insurance may not be sufficient to cover
damages related to those claims.



We may be subject to
lawsuits resulting from injuries associated with the use of sporting goods
equipment and office products that we sell. We may incur losses relating to
these claims or the defense of these claims. There is a risk that claims or
liabilities will exceed our insurance coverage. In addition, we may be unable
to retain adequate liability insurance in the future. In addition, we are
subject to regulation by the Consumer Product Safety Commission and similar
state regulatory agencies. If we fail to comply with government and industry
safety standards, we may be subject to claims, lawsuits, fines and adverse
publicity that could have a material adverse effect on our business, results of
operations and financial condition.

These risks are
not exhaustive.

Other sections of this Form
10-K may include additional factors which could adversely impact our business
and financial performance. Moreover, we operate in a very competitive and
rapidly changing environment. New risk factors emerge from time to time and it is
not possible for our management to predict all risk factors, nor can we assess
the impact of all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.

ITEM 1B  UNRESOLVED STAFF COMMENTS

None.

9

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ITEM 2  PROPERTIES

At December
29, 2007, the Company operated from the following locations:

|                           |  |                  |  |                   |  |                                                                      
|-------------------------- |  | ---------------- |  | ----------------- |  | ---------------------------------------------------------------------
|Location                   |  | Square
  Footage |  | Owned or
  Leased |  | Use                                                                  
|                           |  |                  |  |                   |  |                                                                      
|                           |  |                  |  |                   |  |                                                                      
|Sporting
  Goods           |  |                  |  |                   |  |                                                                      
|Evansville, Indiana, USA   |  | 359,000          |  | Owned             |  | Manufacturing
  and distribution; sales and marketing; administration
|Evansville, Indiana, USA   |  | 126,400          |  | Leased            |  | Warehousing                                                          
|Olney, Illinois, USA       |  | 108,500          |  | Leased            |  | Manufacturing
  and distribution                                     
|Gainesville, Florida, USA  |  | 154,000          |  | Owned             |  | Manufacturing
  and distribution                                     
|Rosarito, Mexico           |  | 66,500           |  | Owned             |  | Manufacturing
  and distribution                                     
|Rosarito, Mexico           |  | 82,500           |  | Leased            |  | Manufacturing                                                        
|Reynosa, Mexico            |  | 126,800          |  | Owned             |  | Manufacturing
  and distribution                                     
|Raleigh, N. Carolina, USA  |  | 69,800           |  | Leased            |  | Manufacturing
  and distribution                                     
|Jacksonville, Florida, USA |  | 18,000           |  | Leased            |  | Sales and
  marketing                                                
|                           |  |                  |  |                   |  |                                                                      
|Office
  Products          |  |                  |  |                   |  |                                                                      
|Wabash, Indiana, USA       |  | 141,000          |  | Owned             |  | Manufacturing
  and distribution; sales and marketing; administration
|Sanford, N. Carolina, USA  |  | 1,600            |  | Leased            |  | Sales and
  marketing                                                
|Markdorf, Germany          |  | 70,300           |  | Owned             |  | Manufacturing
  and distribution; sales and marketing; administration
|Paris, France              |  | 12,900           |  | Leased            |  | Distribution;
  sales and marketing                                  
|Crawley, UK                |  | 8,300            |  | Leased            |  | Sales and
  marketing                                                
|Barcelona, Spain           |  | 8,600            |  | Leased            |  | Distribution;
  sales and marketing                                  

The Company
has no idle facilities, and believes that its facilities are in excellent
condition and suitable for their respective operations. The Company also
believes that it is in compliance with all applicable environmental regulations
and is not subject to any proceeding by any federal, state or local authorities
regarding such matters. The Company provides regular maintenance and service on
its plants and machinery as required.

ITEM 3  LEGAL PROCEEDINGS

The Company is
involved in litigation arising in the normal course of its business, but the
Company does not believe that the disposition or ultimate resolution of such
claims or lawsuits will have a material adverse affect on the business or
financial condition of the Company.

The Company is
not aware of any probable or levied penalties against the Company relating to
the American Jobs Creation Act.

ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS

None.

10

---



Part II

ITEM 5  MARKET FOR THE REGISTRANTS COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS

The Companys
common stock is traded under the symbol ESCA on the NASDAQ Global Market. The
following table sets forth, for the calendar periods indicated, the high and
low sales prices of the Common Stock as reported by the NASDAQ Global Market
(formerly the NASDAQ National Market):

|                                       |  |      |       |     |   |       | 
|-------------------------------------- |  | ---- | ----- | --- | - | ----- | 
|Prices                                 |  | High |       | Low |  
|                                       |  |      |       |     |  
|2007                                   |  |      |       |     |   |       | 
|Fourth quarter ended December 29, 2007 |  | $    | 9.90  |     | $ | 8.78  | 
|Third quarter ended October 6, 2007    |  |      | 9.95  |     |   | 8.06  | 
|Second quarter ended July 14, 2007     |  |      | 10.01 |     |   | 8.85  | 
|First quarter ended March 24, 2007     |  |      | 10.78 |     |   | 8.98  | 
|                                       |  |      |       |     |   |       | 
|2006                                   |  |      |       |     |   |       | 
|Fourth quarter ended December 30, 2006 |  | $    | 10.98 |     | $ | 9.69  | 
|Third quarter ended October 7, 2006    |  |      | 11.68 |     |   | 9.83  | 
|Second quarter ended July 15, 2006     |  |      | 13.74 |     |   | 10.15 | 
|First quarter ended March 25, 2006     |  |      | 12.70 |     |   | 10.11 | 

The closing
market price on February 22, 2008 was $9.06 per share.

Depending on
profitability and cash flows from operations, the Board of Directors
anticipates issuing annual dividends and has done so for four consecutive
years. Dividends issued/declared over the last three years are as follows:

|                 |  |  |                  |  |                         |   |      |  | 
|---------------- |  |  | ---------------- |  | ----------------------- | - | ---- |  | 
|Record Date      |  |  | Payment Date     |  | Amount per Common Share |  
|                 |  |  |                  |  |                        
|March 17,
  2006 |  |  | March 21,
  2006 |  |                         | $ | 0.20 |  | 
|March 9,
  2007  |  |  | March 16,
  2007 |  |                         | $ | 0.22 |  | 
|March 14,
  2008 |  |  | March 21,
  2008 |  |                         | $ | 0.25 |  | 

There were
approximately 227 holders of record of the Companys Common Stock at February
22, 2008. The approximate number of stockholders, including those held by
depository companies for certain beneficial owners, was 958.

11

---



SHAREHOLDER RETURN PERFORMANCE GRAPH

Set forth
below is a line graph comparing the yearly percentage change in the cumulative
total shareholder return on the Companys common stock with that of the
cumulative total return on the NASDAQ US Stock Market Index and the NASDAQ
Non-Financial Stocks Index for the five year period ended December 29, 2007.
The following information is based on an investment of $100, on January 1,
2002, in the Companys common stock, the NASDAQ US Stock Market Index and the
NASDAQ Non-Financial Stocks Index, with dividends reinvested.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN

(LINE GRAPH)

|                                   |  |  |      |  |  |      |  |  |      |  |  |      |  |  |      |  |  |      | 
|---------------------------------- |  |  | ---- |  |  | ---- |  |  | ---- |  |  | ---- |  |  | ---- |  |  | ---- | 
|                                   |  |  | 2002 |  |  | 2003 |  |  | 2004 |  |  | 2005 |  |  | 2006 |  |  | 2007 | 
|                                   |  |  |      |  |  |      |  |  |      |  |  |      | 
|Escalade Common Stock              |  |  | 100  |  |  | 170  |  |  | 134  |  |  | 120  |  |  | 111  |  |  | 97   | 
|NASDAQ US Stock Index              |  |  | 100  |  |  | 150  |  |  | 163  |  |  | 166  |  |  | 183  |  |  | 198  | 
|NASDAQ Non-Financial Stock
  Index |  |  | 100  |  |  | 153  |  |  | 165  |  |  | 169  |  |  | 185  |  |  | 210  | 

The above
performance graph does not constitute soliciting material and should not be
deemed filed or incorporated by reference into any other Company filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, except to
the extent the Company specifically incorporates the performance graph by
reference therein.

12

---



ISSUER PURCHASES OF EQUITY SECURITIES

|                                                                             |  |                                                         |  |                                                |   |                                                                                                               |  |                                                                                                                                             |  |  |   |           | 
|---------------------------------------------------------------------------- |  | ------------------------------------------------------- |  | ---------------------------------------------- | - | ------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  |  | - | --------- | 
|Period                                                                       |  | (a) Total
  Number of
  Shares (or
  Units)
  Purchased |  | (b) Average
  Price Paid per
  Share (or Unit) |   | (c) Total
  Number of
  Shares (or Units)
  Purchased as
  Part of Publicly
  Announced
  Plans or
  Programs |  | (d) Maximum
  Number (or
  Approximate
  Dollar Value) of
  Shares (or Units)
  that May Yet Be
  Purchased Under
  the Plans or
  Programs | 
|                                                                             |  |                                                         |  |                                                |   |                                                                                                               |  |                                                                                                                                             | 
|Shares purchases prior to 10/06/2007 under
  the current repurchase program. |  | 892,533                                                 |  |                                                | $ | 8.93                                                                                                          |  | 892,533                                                                                                                                     |  |  | $ | 401,250   | 
|                                                                             |  |                                                         |  |                                                |   |                                                                                                               |  |                                                                                                                                             |  |  |   |           | 
|Fourth quarter purchases:                                                    |  |                                                         |  |                                                |   |                                                                                                               |  |                                                                                                                                             |  |  |   |           | 
|10/07/2007  11/03/2007                                                      |  | None                                                    |  |                                                |   | None                                                                                                          |  | None                                                                                                                                        |  |  |   | No Change | 
|11/04/2007  12/01/2007                                                      |  | None                                                    |  |                                                |   | None                                                                                                          |  | None                                                                                                                                        |  |  |   | No Change | 
|12/02/2007  12/29/2007                                                      |  | None                                                    |  |                                                |   | None                                                                                                          |  | None                                                                                                                                        |  |  |   | No Change | 
|                                                                             |  |                                                         |  |                                                |   |                                                                                                               |  |                                                                                                                                             | 
|Total share purchases under the current
  program                            |  | 892,533                                                 |  |                                                | $ | 8.93                                                                                                          |  | 892,533                                                                                                                                     |  |  | $ | 3,000,000 | 
|                                                                             |  |                                                         |  |                                                |   |                                                                                                               |  |                                                                                                                                             | 

The Company
has one stock repurchase program which was established in February 2003 by the
Board of Directors and which initially authorized management to expend up to
$3,000,000 to repurchase shares on the open market as well as in private
negotiated transactions. In each of February 2005 and 2006, August 2007 and
February 2008 the Board of Directors increased the remaining balance on this
plan to its original level of $3,000,000. The repurchase plan has no
termination date and there have been no share repurchases that were not part of
a publicly announced program.

13

---



ITEM 6  SELECTED FINANCIAL DATA(In thousands, except per share data)

|                                 |  |                     |         |                       |   |                       |  |                       |         |                       |   |         |  |   |         | 
|-------------------------------- |  | ------------------- | ------- | --------------------- | - | --------------------- |  | --------------------- | ------- | --------------------- | - | ------- |  | - | ------- | 
|At and
  For Years Ended         |  | December 29,
  2007 |         | December
  30,
  2006 |   | December
  31,
  2005 |  | December
  25,
  2004 |         | December
  27,
  2003 |  
|                                 |  |                     |         |                       |   |                       |  |                       |         |                       |  
|Income Statement Data            |  |                     |         |                       |   |                       |  |                       |         |                       |   |         |  |   |         | 
|Net sales                        |  |                     |         |                       |   |                       |  |                       |         |                       |   |         |  |   |         | 
|Sporting goods                   |  | $                   | 129,788 |                       | $ | 136,733               |  | $                     | 120,996 |                       | $ | 141,644 |  | $ | 134,750 | 
|Office and graphic arts products |  |                     | 55,788  |                       |   | 54,732                |  |                       | 62,319  |                       |   | 76,040  |  |   | 81,518  | 
|Total net sales                  |  |                     | 185,576 |                       |   | 191,465               |  |                       | 183,315 |                       |   | 217,684 |  |   | 216,268 | 
|                                 |  |                     |         |                       |   |                       |  |                       |         |                       |   |         |  |   |         | 
|Net income                       |  |                     | 9,255   |                       |   | 8,495                 |  |                       | 12,916  |                       |   | 8,180   |  |   | 14,850  | 
|                                 |  |                     |         |                       |   |                       |  |                       |         |                       |   |         |  |   |         | 
|Weighted-average shares          |  |                     | 12,901  |                       |   | 13,012                |  |                       | 13,055  |                       |   | 12,980  |  |   | 12,968  | 
|                                 |  |                     |         |                       |   |                       |  |                       |         |                       |   |         |  |   |         | 
|Per Share Data                   |  |                     |         |                       |   |                       |  |                       |         |                       |   |         |  |   |         | 
|Basic earnings per share         |  | $                   | 0.72    |                       | $ | 0.65                  |  | $                     | 0.99    |                       | $ | 0.63    |  | $ | 1.15    | 
|Cash dividends                   |  | $                   | 0.22    |                       | $ | 0.20                  |  | $                     | 0.15    |                       | $ | 0.12    |  |   |        | 
|                                 |  |                     |         |                       |   |                       |  |                       |         |                       |   |         |  |   |         | 
|Balance Sheet Data               |  |                     |         |                       |   |                       |  |                       |         |                       |   |         |  |   |         | 
|Working capital                  |  |                     | 31,442  |                       |   | 33,125                |  |                       | 42,350  |                       |   | 36,852  |  |   | 24,657  | 
|Total assets                     |  |                     | 152,016 |                       |   | 150,715               |  |                       | 124,860 |                       |   | 134,969 |  |   | 134,437 | 
|Short-term bank debt             |  |                     | 13,033  |                       |   | 10,336                |  |                       | 1,066   |                       |   | 11,638  |  |   | 21,568  | 
|Long-term bank debt              |  |                     | 19,135  |                       |   | 22,609                |  |                       | 18,487  |                       |   | 15,542  |  |   | 15,020  | 
|Total stockholders equity       |  |                     | 91,742  |                       |   | 85,715                |  |                       | 76,623  |                       |   | 71,034  |  |   | 61,283  | 

Fiscal year
2006 was adversely impacted by the completion of a plan to rationalize certain
products in the Office Products business. This event is more fully described in
Managements Discussion and Analysis of Financial Condition and Results of
Operations.

Fiscal year
2005 was adversely impacted by lower sales to Sears, a major sporting goods
customer, and the rationalization of certain products in the Office Products
business. These events are more fully described in Managements Discussion and
Analysis of Financial Condition and Results of Operations.

Fiscal year
2004 was negatively impacted by restructuring charges and a goodwill impairment
loss.

ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following
section should be read in conjunction with Item 1: Business; Item 1A: Risk
Factors; Item 6: Selected Financial Data; and Item 8: Financial Statements and
Supplementary Data.

Forward-Looking Statements

This report
contains forward-looking statements relating to present or future trends or
factors that are subject to risks and uncertainties. These risks include, but
are not limited to, the impact of competitive products and pricing, product
demand and market acceptance, new product development, the continuation and
development of key customer and supplier relationships, Escalades ability to
control costs, general economic conditions, fluctuation in operating results,
changes in the securities market and other risks detailed from time to time in
Escalades filings with the Securities and Exchange Commission. Escalades
future financial performance could differ materially from the expectations of
management contained herein. Escalade undertakes no obligation to release
revisions to these forward-looking statements after the date of this report.

Overview

Escalade,
Incorporated (Escalade or Company) manufactures and distributes products
for two industries: Sporting Goods and Office Products. Within these industries
the Company has successfully built a market presence in niche markets. This
strategy is heavily dependent on expanding the customer base, barriers to
entry, brand recognition and excellent customer service. A key strategic
advantage is the Companys established relationships with major customers that
allow the Company to bring new products to the market in a cost effective
manner while maintaining a diversified product line and wide customer base. In
addition to strategic customer relations, the Company has substantial
manufacturing and import experience that enable it to be a low cost supplier.

14

---



A majority of
the Companys products are in markets that are experiencing low growth rates.
Where the Company enjoys a commanding market position, such as table tennis
tables in the Sporting Goods segment and paper folding machines in the Office
Products segment, revenue growth is expected to be roughly equal to general
growth in the economy. However, in markets that are fragmented and where the
Company is not the dominant leader, such as archery in the Sporting Goods
segment and data security shredders in the Office Products segment, the Company
anticipates significant growth. To enhance internal growth, the Company has
developed a strategy of acquiring companies or product lines that complement or
expand the Companys product lines. A key objective is the acquisition of
product lines with barriers to entry that the Company can take to market
through its established distribution channels or through new market channels.
Significant synergies are achieved through assimilation of acquired product
lines into the existing company structure. Management believes that key
indicators in measuring the success of this strategy are revenue growth,
earnings growth and the expansion of channels of distribution. The following
table sets forth the percentage growth in revenues and net income over the past
three years:

|                |  |      |   |      |       |      |  |       |   | 
|--------------- |  | ---- | - | ---- | ----- | ---- |  | ----- | - | 
|                |  | 2007 |   | 2006 |       | 2005 | 
|                |  |      |   |      |       |      | 
|                |  |      |   |      |       |      | 
|Net revenue     |  |      |   |      |       |      |  |       |   | 
|Sporting Goods  |  | -5.1 | % |      | 13.0  | %    |  | -14.6 | % | 
|Office Products |  | 1.9  | % |      | -12.2 | %    |  | -18.0 | % | 
|Total           |  | -3.1 | % |      | 4.4   | %    |  | -15.8 | % | 
|                |  |      |   |      |       |      |  |       |   | 
|Net Income      |  | 9.0  | % |      | -34.2 | %    |  | 57.9  | % | 

Results of Operations

The following
schedule sets forth certain consolidated statement of income data as a
percentage of net revenue for the periods indicated:

|                                               |  |       |   |      |       |      |  |       |   | 
|---------------------------------------------- |  | ----- | - | ---- | ----- | ---- |  | ----- | - | 
|                                               |  | 2007  |   | 2006 |       | 2005 | 
|                                               |  |       |   |      |       |      | 
|Net revenue                                    |  | 100.0 | % |      | 100.0 | %    |  | 100.0 | % | 
|Cost of
  products sold                        |  | 70.8  | % |      | 72.0  | %    |  | 69.7  | % | 
|                                               |  |       |   |      |       |      |  |       |   | 
|Gross margin                                   |  | 29.2  | % |      | 28.0  | %    |  | 30.3  | % | 
|Selling,
  administrative and general expenses |  | 20.8  | % |      | 20.6  | %    |  | 19.8  | % | 
|Restructuring
  costs                          |  | 0.0   | % |      | 0.0   | %    |  | -0.3  | % | 
|Amortization                                   |  | 1.4   | % |      | 1.2   | %    |  | 0.6   | % | 
|                                               |  |       |   |      |       |      |  |       |   | 
|Operating
  income                             |  | 7.0   | % |      | 6.2   | %    |  | 10.2  | % | 
|                                               |  |       |   |      |       |      |  |       |   | 

Consolidated Revenue
and Gross Margin

Continued
sales declines to mass market retail customers in the Sporting Goods business
resulted in an overall decline of 3% in consolidated net revenues for 2007
compared to 2006. These declines in the mass market retail channel offset gains
in the specialty retail and dealer channels. Revenues from the Office Products
business increased 2% in 2007 compared to 2006 due principally to changes in
foreign exchange rates.

The overall
gross margin in 2007 increased in comparison to 2006 due to expansion of the
Sporting Goods business into the specialty retail and dealer markets which have
higher gross margin ratios. The gross margin ratio in the Office Products
business declined slightly in 2007 compared to last year, primarily due to the
effect of changing foreign exchange rates on the cost of goods sold in North
America.

15

---



Consolidated
Selling, General and Administrative Expenses

Consolidated
selling, general and administrative expenses (SG&A) declined slightly in
2007 compared to 2006 due principally to lower sales; as a ratio of net
revenue, SG&A costs were relatively unchanged from the prior year. Lower
SG&A costs in the Office Products business were offset by slightly higher
costs in the Sporting Goods business and corporate administration. The
reduction in SG&A costs in the Office Products business is associated with
cost reductions designed to bring European operating costs in line with current
revenues. The increase in SG&A costs associated with the Sporting Goods
business reflects higher selling costs associated with expansion into the
specialty retail and dealer channels. Corporate administration costs were
higher primarily due to professional fees associated with selecting an
integrated global information system and compliance task; audit and tax.

Other Income

Other income
increased in 2007 compared to 2006 as a result of a one-time sale of rights to
license potential future intellectual property. The transaction generated a
gain of $1.5 million.

Provision for Income
Taxes

The effective
income tax rate in 2007 was higher relative to 2006 primarily due to taxation
on repatriated earnings from the Companys foreign operations. Excluding the
effects of this repatriation, the effective tax rate for 2007 would have been
29.6% compared to 25.9% and 32.9% in 2006 and 2005, respectively. The Company
expects future effective tax rates to approximate the effective tax rate
achieved in 2007 excluding the effect of repatriated earnings.

Sporting Goods

Net sales,
operating income, and net income for the Sporting Goods business segment for
the three years ended December 2007 were as follows:

|                 |  |      |         |      |   |         |  |   |         | 
|---------------- |  | ---- | ------- | ---- | - | ------- |  | - | ------- | 
|In Thousands     |  | 2007 |         | 2006 |   | 2005    | 
|                 |  |      |         |      |   |         | 
|                 |  |      |         |      |   |         |  |   |         | 
|Net Revenue      |  | $    | 129,788 |      | $ | 136,733 |  | $ | 120,996 | 
|Operating income |  |      | 7,745   |      |   | 7,835   |  |   | 12,288  | 
|Net income       |  |      | 5,341   |      |   | 3,562   |  |   | 7,386   | 

Net revenue
declined 5% in 2007 compared to 2006, but remains slightly more than the level
achieved in 2005. Sales to the Companys mass market retail customers declined
roughly 14% in 2007 compared to 2006 and reflect two factors: a general
slowdown in the US economy which is adversely affecting mass retailers in
general and a continued industry wide decline in consumer demand for soccer and
hockey game tables. The Company continues to aggressively pursue opportunities
with its mass market retail customers, but sales to this channel are expected
to continue to decline. To counteract this trend, the Company continues to
pursue a strategy of expanding certain product offerings and distribution
through specialty retailers and dealers. Sales to these channels increased 14%
in 2007 compared to 2006 and now comprise 38% of total revenues compared to 31%
last year. Growth anticipated in the specialty retail and distributor channels
are not expected to completely overcome expected significant declines in mass
market retail channels, including diminished sales to Sears. Consequently the
Company anticipates total 2008 sales for the Sporting Goods segment to be
relatively unchanged from 2007.

Sales in 2006
were higher than 2005 due primarily to acquisitions completed during the first
half of 2006 which increased distribution to the specialty retail and
distributor channels. Sales to mass market retail customers were relatively
unchanged in 2006 compared to 2005.

The gross
margin ratio in 2007 increased slightly compared to 2006, but continued to be
less than the ratio achieved in 2005 due to continued pricing pressures from
mass market retailers. Because sales to the specialty retailer/dealer channel have
higher gross margins, the gross margin ratio in the Sporting Goods business is
expected to continue to improve as sales to this channel become a larger part
of total product mix. As a result, operating income as a percentage of net
revenue increased to 5.9% in 2007 compared to 5.7% in 2006. Management
anticipates this trend to continue as sales to the specialty retail/dealer
channel increase.

16

---



Net income for
2007 increased 50% over 2006 due primarily to the one-time sale of rights to
license potential future intellectual property.

Office Products

Net sales,
operating income, and net income for the Office Products business segment for
the three years ended December 29, 2007 were as follows:

|                   |  |      |        |      |   |        |  |   |        | 
|------------------ |  | ---- | ------ | ---- | - | ------ |  | - | ------ | 
|In Thousands       |  | 2007 |        | 2006 |   | 2005   | 
|                   |  |      |        |      |   |        | 
|                   |  |      |        |      |   |        | 
|Net Sales          |  | $    | 55,788 |      | $ | 54,732 |  | $ | 62,319 | 
|Operating
  income |  |      | 8,809  |      |   | 8,131  |  |   | 8,679  | 
|Net income         |  |      | 5,617  |      |   | 5,095  |  |   | 5,683  | 

Sales in the
Office Products business increased 1.9% in 2007 compared to 2006 primarily due
to changes in foreign exchange rates. Excluding the effect of changing foreign
exchange rates, 2007 sales were essentially unchanged from 2006. Declining
sales to traditional office products retailers were offset by increased sales
to specialty machine dealers and increased demand for high security and heavy
duty shredders. Management anticipates further declines in sales to office
product retailers as a result of the slowing US economy. However, new product
launches and an expanding presence in machine dealers is expected to offset these
shortfalls resulting in a modest increase in 2008.

Sales in 2006
were lower than 2005 due to product rationalizations designed to eliminate
unprofitable products and customers to improve profitability.

Profitability
in the Office Products segment increased again in 2007 as evidenced by the
ratio of operating income to net sales which increased from 13.9% in 2005, to
14.9% in 2006 and 15.8% in 2007. The primary reasons for this improving trend
in profitability are the product rationalizations and cost reduction programs
that were completed in 2006. Product rationalizations allowed the Company to
eliminate unprofitable products and customers, while cost reduction programs
aligned operating expenses with current revenue levels.

Financial Condition and Liquidity

Cash flows and
financial strength continue to be strong as a result of continued
profitability. The current ratio, a basic measure of liquidity (current assets
divided by current liabilities), was unchanged in 2007 compared to 2006. Total
accounts receivable are down at the end of 2007 as a direct result of a lower
sales volume. Year end inventory balances are consistent with prior years and
current sales trends.

As of December
29, 2007, total debt to banks, including short-term and long-term, was
substantially unchanged compared to the prior year. Cash from operations in
2007, funded acquisitions totaling $4.2 million; property, plant and equipment
investments of $2.4 million; the payment of dividends totaling $2.9 million;
and the repurchase of common stock totaling $3.4 million. As a percentage of
stockholders equity, total bank debt was 35% at December 29, 2007 compared to
38% at December 30, 2006.

Spending on
property, plant and equipment in 2007 totaled $2.4 million compared to $2.7
million in 2006. Depreciation expense, $3.2 million, was unchanged in 2007
compared to 2006. Capital expenditure levels in 2007 were consistent with prior
years. In 2008, the Company expects capital expenditures to be approximately
$4.5 million higher due to costs associated with the implementation of a global
integrated information system.

The Companys
working capital requirements are primarily funded through cash flows from
operations and revolving credit agreements with its bank. During 2007 the
Companys maximum borrowings under its primary revolving credit lines totaled
$52.4 compared to $55.4 million in 2006 and the Company met all its debt
covenants. The over all effective interest rate in 2007 was 6.7% which was
consistent with the effective rate of 6.4% in 2006.

17

---



The Companys
relationship with its primary lending bank remains strong and the Company
expects to have access to the same level of revolving credit that was available
in 2007. In addition, the Company believes it can quickly reach agreement with
its current lending bank or an alternate lending source to increase available
credit should the need arise.

On March 4,
2008, The Company announced the payment of an annual dividend of $0.25 per
share to all shareholders of record on March 14, 2008, payable on March 21,
2008.

New Accounting Pronouncements

Refer to Note
1 (Summary of Significant Accounting Policies) to the consolidated financial
statements.

Off Balance Sheet Financing Arrangements

The Company
has no financing arrangements that are not recorded on the Companys balance
sheet.

Contractual Obligations

The following
schedule summarizes the Companys contractual obligations as of December 29,
2007:

|                                                                                 |  |                        |        |                    |   |             |   |             |        |                     |   |        |  |   |       | 
|-------------------------------------------------------------------------------- |  | ---------------------- | ------ | ------------------ | - | ----------- | - | ----------- | ------ | ------------------- | - | ------ |  | - | ----- | 
|Amounts in
  thousands                                                           |  | Payments Due by Period |       
|                                                                                 |  |                        |       
|Contractual
  Obligations                                                        |  | Total                  |        | Less than 1
  year |   | 1  3 years |   | 3  5 years |        | More than 5
  years |  
|                                                                                 |  |                        |        |                    |   |             |   |             |        |                     |  
|                                                                                 |  |                        |        |                    |   |             |   |             |        |                     |   |        |  |   |       | 
|Long-term debt                                                                   |  | $                      | 32,168 |                    | $ |            |   | $           | 13,033 |                     | $ | 16,435 |  | $ | 2,700 | 
|Future interest payments (1)                                                     |  |                        | 8,575  |                    |   | 2,050       |   |             | 3,254  |                     |   | 1,111  |  |   | 2,160 | 
|Future interest payments (receipts) under
  the Interest rate swap agreement (2) |  |                        | (247   | )                  |   | (174        | ) |             | (73    | )                   |   |       |  |   |      | 
|Operating Leases                                                                 |  |                        | 1,913  |                    |   | 1,032       |   |             | 729    |                     |   | 152    |  |   |      | 
|Minimum payments under royalty and license
  agreements                          |  |                        | 742    |                    |   | 642         |   |             |       |                     |   | 100    |  |   |      | 
|                                                                                 |  |                        |        |                    |   |             |   |             |        |                     |   |        |  |   |       | 
|Total                                                                            |  | $                      | 43,151 |                    | $ | 3,550       |   | $           | 16,943 |                     | $ | 17,798 |  | $ | 4,860 | 
|                                                                                 |  |                        |        |                    |   |             |   |             |        |                     |   |        |  |   |       | 

Notes:

(1) Assumes
that the Company will not increase borrowings under its long-term credit
agreements and that the effective interest rate experienced in 2007 (6.7%) will
continue for the life of the agreements.

(2) Assumes
that the LIBOR rate (5.0%) at December 29, 2007 will remain unchanged for the
term of the swap agreement.

Critical Accounting Estimates

The methods,
estimates and judgments used in applying the Companys accounting policies have
a significant impact on the results reported in its financial statements. Some
of these accounting policies require difficult and subjective judgments, often
as a result of the need to make estimates of matters that are inherently
uncertain. The most critical accounting estimates are described below and in
the Notes to the Consolidated Financial Statements.

Product WarrantyThe Company provides limited warranties on certain of
its products, for varying periods. Generally, the warranty periods range from
90 days to one year. However, some products carry extended warranties of
seven-year, ten-year, and lifetime warranties. The Company records an accrued
liability and expense for estimated future warranty claims based upon
historical experience and managements estimate of the level of future claims.
Changes in the estimated amounts recognized in prior years are recorded as an
adjustment to the accrued liability and expensed in the current year. To the
extent there are product defects in current products that are unknown to
management and do not fall within historical defect rates, the product warranty
reserve could be understated and the Company could be required to accrue
additional product warranty costs thus negatively affecting gross margin.

18

---



Inventory Valuation ReservesThe Company evaluates inventory for obsolescence and
excess quantities based on demand forecasts based on specified time frames,
usually one year. The demand forecast is based on historical usage, sales
forecasts and current as well as anticipated market conditions. All amounts in
excess of the demand forecast are deemed to be excess or obsolete and a reserve
is established based on the anticipated net realizable value. To the extent
that demand forecasts are greater than actual demand and the Company fails to
reduce manufacturing output accordingly, the Company could be required to
record additional inventory reserves which would have a negative impact on
gross margin.

Allowance for Doubtful AccountsThe Company provides an allowance for doubtful
accounts based upon a review of outstanding receivables, historical collection
information and existing economic conditions. Accounts receivable are
ordinarily due between 30 and 60 days after the issuance of the invoice.
Accounts are considered delinquent when more than 90 days past due. Delinquent
receivables are reserved or written off based on individual credit evaluation
and specific circumstances of the customer. To the extent that actual bad debt
losses exceed the allowance recorded by the Company, additional reserves would
be required which would increase selling, general and administrative costs.

Advertising SubsidiesThe Company enters agreements with certain retailers to
pay for direct advertising programs and/or provide in-store display units.
These agreements are not based on retailer purchase volumes and do not obligate
the retailer to continue carrying the Companys products. The Company
determines the value of the advertising services based on its own research and
history of providing such services. The Company expenses these costs in the
period in which they are incurred as a selling expense.

CO-OP AdvertisingThe Company offers co-operative advertising allowances
to certain retailers to encourage product promotions. These agreements are
typically based on a percentage of retailer purchases up to a maximum allowance
and the Company is never directly involved with the media provider. The Company
accrues the estimated cost of these programs based on the sales volume of the
retailer and historical trends. As costs are accrued they are recorded as a
reduction in sales. To the extent that actual co-operative advertising costs
exceed the Companys estimates, additional co-operative advertising allowances
would be required which would reduce net revenues.

Volume RebatesThe Company has various rebate programs with certain
retailers that are based on purchase volume. Typically these programs are based
on achieving specified sales volumes and the rebate is calculated as a
percentage of purchases. Based on the terms of the agreement, purchase levels
and historical trends the Company accrues the estimated cost of these programs
and records the same as a reduction in sales. To the extent that actual rebate
program costs exceed the Companys estimates, additional rebate program
allowances would be required which would reduce net revenues.

Catalog AllowancesA number of large office supply dealers operate
through catalogs distributed to businesses throughout the country. Product
content is decided by the dealer each time a new catalog is issued; typically
once a year. Catalog allowances are required by the dealer as an inducement to
include the Companys products. The allowance is based on a fixed cost per page
and/or a percentage of purchases by the dealer. The fixed portion of the
allowance is often paid when the catalog is distributed and is recognized when
incurred and the variable portion is accrued based on dealer purchases and
historical trends. Catalog allowances are recorded as a reduction in sales. To
the extent that actual catalog costs exceed the estimated costs associated with
variable agreement provisions, additional catalog allowances would be required
which would negatively impact net revenues.

19

---



Effect of Inflation

The Company
cannot accurately determine the precise effects of inflation; however, there
were some increases in sales and costs due to inflation in 2007.  The Company attempts to pass on increased
costs and expenses through price increases when necessary.  The Company is working on reducing expenses;
improving manufacturing technologies; and redesigning products to keep these
costs under control.

Capital Expenditures

As of December
29, 2007, the Company had no material commitments for capital expenditures.
However, in the first quarter of 2008, the Company initiated a project to
implement a global integrated information system. In 2008, the Company expects
to incur capital expenditures related to this project of $4.5 million.

ITEM 7A  QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

The Company is exposed to
financial market risks, including changes in currency exchange rates, interest
rates and marketable equity security prices. The Company attempts to minimize
these risks through regular operating and financing activities and, when
considered appropriate, through the use of derivative financial instruments.
During fiscal 2007, the only derivative in use was an interest rate swap
agreement. The Company does not purchase, hold or sell derivative financial
instruments for trading or speculative purposes.

Interest RatesThe Companys exposure to
market-rate risk for changes in interest rates relates primarily to its
revolving variable rate bank debt which is based on both U.S. prime and LIBOR
interest rates. A hypothetical 1% or 100 basis point change in interest rates
would not have a significant effect on our consolidated financial position or
results of operation. In an effort to mitigate the risk of unfavorable interest
rate fluctuations the Company entered into an interest rate swap agreement
which effectively converted a portion of its variable rate debt into fixed rate
debt.

Foreign CurrencyThe Company conducts
business in various countries around the world and is therefore subject to
risks associated with fluctuating foreign exchange rates. Approximately 13% of
consolidated revenue is derived from sales outside of the U.S. This revenue is
generated from the operations of the Companys subsidiaries in their respective
countries and surrounding geographic areas and is primarily denominated in each
subsidiarys local functional currency. These subsidiaries incur most of their
expenses (other than inter-company expenses) in their local functional currency
and include the Euro, Great Britain Pound Sterling, Mexican Peso and Chinese
Yuan.

The geographic areas outside
the United States in which the Company operates are generally not considered to
be highly inflationary. Nonetheless, the Companys foreign operations are
sensitive to fluctuations in currency exchange rates arising from, among other
things, certain inter-company transactions that are denominated in currencies
other than the respective functional currency. Operating results as well as
assets and liabilities are also subject to the effect of foreign currency
translation when the operating results, assets and liabilities of our foreign
subsidiaries are translated into U.S. dollars in our consolidated financial
statements. The unrealized effect of foreign currency translation in 2007
resulted in a $2.3 million gain that
was recorded in stockholders equity as other comprehensive income, compared to
a $2.4 million gain in 2006 and a $3.9 million loss in 2005. At
December 29, 2007, a hypothetical change of 10% in foreign currency
exchange rates would cause a $2.6 million change to stockholders equity
on our consolidated balance sheet and a $0.4 million change to net income
in our consolidated statement of income.

The Company and its
subsidiaries conduct substantially all their business in their respective
functional currencies to avoid the effects of cross-border transactions. To
protect against reductions in value and the volatility of future cash flows
caused by changes in currency exchange rates, the Company carefully considers
the use of transaction and balance sheet hedging programs such as matching
assets and liabilities in the same currency. Such programs reduce, but do not
entirely eliminate, the impact of currency exchange rate changes. The Company
has evaluated the use of currency exchange hedging financial instruments but
has determined that they would not be practicable under the current
circumstances. Historical trends in currency exchanges indicate that it is
reasonably possible that adverse changes in exchange rates of 20% for the Euro
could be experienced in the near term. A hypothetical adverse change of 20%
would have resulted in an decline of 3% in net revenues and a 9% decline in net
income.

20

---



Marketable SecuritiesAn adverse
movement of equity market prices would have an impact on the Companys
long-term marketable equity securities available for sale that are included in
other assets on the consolidated balance sheet. At December 29, 2007 the
aggregate fair market value of long-term marketable equity securities available
for sale was $4.5 million. Due to the unpredictable nature of the equity market
the Company has not employed any hedge programs relative to these investments.

ITEM 8  FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

The financial
statements and supplementary data required by Item 8 are set forth in Part IV,
Item 15.

ITEM 9  CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM
9A  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and
Procedures

Escalade
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Companys Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms, and that such information is accumulated and
communicated to the Companys management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of disclosure
controls and procedures in Rule 13a-14(c).
In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.  Also, the Company has
investments in certain unconsolidated entities.  As the Company does not control or manage these entities, its
disclosure controls and procedures with respect to such entities are
necessarily substantially more limited than those it maintains with respect to
its consolidated subsidiaries.

The Company
carried out an evaluation, under the supervision and with the participation of
the Companys management, including the Companys Chief Executive Officer and
the Companys Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures as of the end of
the period covered by this report.
Based on the foregoing, the Companys Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and
procedures were effective.

Managements Report on Internal Control over
Financial Reporting

Escalades
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company.  Escalades internal control system was designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.
Internal control over financial reporting of the Company includes those
policies and procedures that:

(1)
pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions of the Company;

21

---



(2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and
directors of the Company; and

(3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Companys assets that could
have a material effect on the Companys financial statements.

All internal
control systems, no matter how well designed, have inherent limitations,
including the possibility of human error or circumvention through collusion or
improper overriding of controls.
Therefore, even those internal control systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation.  Further, because
of changes in conditions, the effectiveness of internal control may vary over
time.

The management
of Escalade assessed the effectiveness of the Companys internal control over
financial reporting as of December 29, 2007.
In making its assessment of internal control over financial reporting,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control  Integrated Framework
and implemented a process to monitor and assess both the design and operating
effectiveness of the Companys internal controls.  Based on this assessment, management believes that, as of
December 29, 2007, the Companys internal control over financial reporting was
effective.

The
effectiveness of the Companys internal control over financial reporting as of
December 29, 2007 has been audited by BKD LLP, an independent registered public
accounting firm that audited the Companys consolidated financial statements
included in this annual report. The attestation report on the Companys
internal control over financial reporting prepared by the independent registered
public accounting firms are included below in this Item 9A.

| |                                                 |  |                                               | 
| | ----------------------------------------------- |  | --------------------------------------------- | 
| | /s/ Robert J.
  Keller, Chief Executive Officer |  | /s/ Terry
  Frandsen, Chief Financial Officer | 

Changes in Internal Control over Financial
Reporting

Management of
the Company has evaluated, with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, changes in the Companys
internal controls over financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) of the Exchange Act) during the fourth quarter of 2007. In connection
with such evaluation, there have been no changes to the Companys internal
control over financial reporting that occurred since the beginning of the
Companys fourth quarter of 2007 that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial
reporting.

Report of Independent
Registered Public Accounting Firm

|                                     
|-------------------------------------
|Audit Committee,                     
|Board of Directors and
  Stockholders
|Escalade, Incorporated               
|Evansville, Indiana                  

We have audited Escalade,
Incorporateds (Company) internal control over financial reporting as of
December 29, 2007, based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).  The Companys management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Managements Report on Internal Control
Over Financial Reporting.  Our
responsibility is to express an opinion on the Companys internal control over
financial reporting based on our audit.
We did not audit the effectiveness of internal control over financial
reporting of Martin Yale International, GmbH, a wholly owned subsidiary, whose
consolidated financial statements reflect total assets and revenues of $22,944
and $30,943 (dollars in thousands), respectively, included in the related
consolidated financial statement amounts as of and for the year ended December
29, 2007.  The effectiveness of this
subsidiarys internal control over financial reporting was audited by other
accountants whose report has been furnished to us, and our opinion, insofar as
it relates to the effectiveness of the subsidiarys internal control over
financial reporting, is based solely on the report of other accountants.

22

---



We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States).  Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects.  Our audit
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk.  Our audit also included
performing such other procedures as we considered necessary in the
circumstances.  We believe that our
audit and the report of the other accountants provide a reasonable basis for
our opinion.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles.  A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a
material effect on the financial statements.

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements.  Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or that the
degree of compliance with the policies or procedures may deteriorate.

In our opinion, based on our
audit and the report of other accountants, the Company maintained, in all
material respects, effective internal control over financial reporting as of
December 29, 2007, based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).

We have also audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements of the Company and our
report dated March 10, 2008, expressed an unqualified opinion thereon.

|                   
|-------------------
|BKD, LLP           
|                   
|Evansville, Indiana
|March 10, 2008     

Report of Independent
Registered Public Accounting Firm

|                                            
|--------------------------------------------
|To the Stockholders and
  Board of Directors
|Martin Yale International
  GmbH,           
|Markdorf/Germany                            

We have
audited Martin Yale International GmbHs (Company) internal control over
financial reporting as of December 31, 2007, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).  The Companys management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion
on the Companys internal control over financial reporting based on our
audit.

23

---



We conducted
our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects.  Our audit included obtaining
an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such
other procedures as we considered necessary in the circumstances.  We believe that our audit provides a
reasonable basis for our opinion.

A companys
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.
A companys internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a
material effect on the financial statements.

Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements.  Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions
or that the degree of compliance with the policies or procedures may
deteriorate.

In our
opinion, based on our audit the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).

We have also
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the financial statements of the Company and
our report dated March 10, 2008, expressed an unqualified opinion thereon.

|                               
|-------------------------------
|FALK & Co GmbH                 
|Wirtschaftsprüfungsgesellschaft
|Steuerberatungsgesellschaft    
|                               
|Heidelberg, Germany            
|March 10,
  2008               

ITEM 9B  OTHER INFORMATION

None.

Part III

ITEM 10  DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE

Information
required under this item with respect to Directors and Executive Officers is
contained in the registrants Proxy Statement relating to its annual meeting of
stockholders scheduled to be held on April 25, 2008 under the captions Certain
Beneficial Owners, Election of Directors, Executive Officers of the
Registrant, Board of Directors, Its Committees, Meetings and Functions, and
Section 16(a) Beneficial Ownership Reporting Compliance and is incorporated
herein by reference.

24

---



ITEM 11  EXECUTIVE COMPENSATION

Information
required under this item is contained in the registrants Proxy Statement
relating to its annual meeting of stockholders scheduled to be held on April
25, 2008 under the captions Compensation Discussion and Analysis,
Compensation Committee Interlocks and Insider Participation and Executive
Compensation and is incorporated herein by reference, except that the
information required by Item 407(e)(5) of Regulation S-K which appear within
such caption under the sub-heading Report of Compensation Committee is
specifically not incorporated by reference into this Form 10-K or into any
other filing by the registrant under the Securities Act of 1933 or the
Securities Exchange Act of 1934.

ITEM 12  SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Except for the
information required by Item 201(d) of Regulation S-K, which is included below,
information required by this item is contained in the registrants proxy
statement relating to its annual meeting of stockholders scheduled to be held
on April 25, 2008 under the caption Certain Beneficial Owners and is
incorporated herein by reference.

Equity Compensation Plan Information

|                                                             |  |                                                                                                      |  |                                                                                     |  |                                                                       |  |   |       |  |  |  |  |         |  | 
|------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | --------------------------------------------------------------------- |  | - | ----- |  |  |  |  | ------- |  | 
|Plan Category                                                |  | Number
  of
  Securities to be Issued 
  Upon Exercise of Outstanding Options,
  Warrants and Rights |  | Weighted-Average
  Exercise Price
  of Outstanding Options,
  Warrants
  and Rights |  | Number
  of
  Securities Remaining 
  Available for Future
  Issuance | 
|                                                            
|                                                             |  |                                                                                                      |  |                                                                                     |  |                                                                       |  |   |       |  |  |  |  |         |  | 
|Equity compensation plans approved by
  security holders (1) |  |                                                                                                      |  | 591,035                                                                             |  |                                                                       |  | $ | 13.24 |  |  |  |  | 964,041 |  | 
|Equity compensation plans not approved by
  security holders |  |                                                                                                      |  |                                                                                    |  |                                                                       |  |   |      |  |  |  |  |        |  | 
|                                                             |  |                                                                                                      |  |                                                                                     |  |                                                                       |  |   |       |  |  |  |  |         |  | 
|Total                                                        |  |                                                                                                      |  | 591,035                                                                             |  |                                                                       |  |   |       |  |  |  |  | 964,041 |  | 
|                                                             |  |                                                                                                      |  |                                                                                     |  |                                                                       |  |   |       |  |  |  |  |         |  | 

(1) These
plans include the Companys 1997 Incentive Stock Option Plan, the 1997 Director
Stock Option Plan, the Escalade, Incorporated 2007 Incentive Plan and a special
grant of 10,000 options to Directors approved at the 2006 annual shareholders
meeting.

ITEM 13  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

The
information required by Item 407(a) of Regulation S-K is contained in the
registrants proxy statement relating to its annual meeting of stockholders to
be held on April 25, 2008 under the captions Election of Directors and Board
of Directors, Its Committees, Meetings and Functions and is incorporated
herein by reference. The information required by Item 404 of Regulation S-K is:
None.

ITEM 14  PRINCIPAL ACCOUNTING FEES AND
SERVICES

The
information required by this item is contained in the registrants proxy
statement relating to its annual meeting of stockholders scheduled to be held
on April 25, 2008 under the caption Principal Accounting Firm Fees and is
incorporated herein by reference.

25

---



Part IV

ITEM 15  EXHIBITS, FINANCIAL STATEMENT SCHEDULES

|    |                                            
|--- | -------------------------------------------
|(A) | Documents
  filed as a part of this report:

| |     |                                                                                                                                                                                                                |                                                                                                                                 
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------
| | (1) | Financial
  Statements                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                | Report of Independent Registered Public Accounting Firm                                                                         
| |     |                                                                                                                                                                                                                | Consolidated financial statements of Escalade, Incorporated and subsidiaries:                                                   
| |     |                                                                                                                                                                                                                | Consolidated balance sheetsDecember 29, 2007 and December 30, 2006                                                             
| |     |                                                                                                                                                                                                                | Consolidated statements of incomefiscal years ended December 29,
  2007, December 30, 2006, and December 31, 2005              
| |     |                                                                                                                                                                                                                | Consolidated statements of stockholders equityfiscal years ended
  December 29, 2007, December 30, 2006, and December 31, 2005
| |     |                                                                                                                                                                                                                | Consolidated statements of cash flowsfiscal years ended December 29,
  2007,  December 30, 2006, and December
  31, 2005       
| |     |                                                                                                                                                                                                                | Notes to consolidated financial statements                                                                                      
| |     |                                                                                                                                                                                                                |                                                                                                                                 
| |     | All other schedules are omitted because of the absence of conditions
  under which they are required or because the required information is given in
  the consolidated financial statements or notes thereto.

| |     |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | -------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | Exhibits |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | 3.1      | Articles of incorporation
  of Escalade, Incorporated (a)                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | 3.2      | By-Laws of Escalade,
  Incorporated (a)                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | 4.1      | Form of Escalade,
  Incorporateds common stock certificate (a)                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | 10.1     | Licensing agreement
  between Sweden Table Tennis AB and Indian Industries, Inc. dated January 1,
  1995 (d)                                                                                                                                                                                                                                                                                                                                                           
| |     | 10.2     | Amended and Restated
  Credit Agreement dated October 24, 2001 between Escalade, Incorporated and
  Bank One, Indiana, N.A. dated August 29, 2002 (g)                                                                                                                                                                                                                                                                                                                  
| |     | 10.3     | First Amendment to Amended
  and Restated Credit Agreement dated October 24, 2001 between Escalade,
  Incorporated and Bank One, Indiana, N.A. dated August 29, 2002 (h)                                                                                                                                                                                                                                                                                               
| |     | 10.4     | Third Amendment to amend
  and restate the credit agreement between Escalade, Incorporated and Bank One,
  N.A. The effective date is June 1, 2003 (i)                                                                                                                                                                                                                                                                                                                 
| |     | 10.5     | Credit Agreement dated as
  of September 5, 2003 by and between Indian-Martin, Inc. and Bank One,
  National Association (excluding exhibits and schedules not deemed to be
  material). The effective date is September 7, 2003 (j)                                                                                                                                                                                                                                   
| |     | 10.6     | Revolving Note dated as of
  September 5, 2003 in principal amount of $45,000,000, executed by
  Indian-Martin, Inc. in favor of Bank One, National Association (j)                                                                                                                                                                                                                                                                                                    
| |     | 10.7     | Pledge Agreement dated as
  of September 5, 2003 by and between Indian-Martin, Inc. and Bank One,
  National Association (j)                                                                                                                                                                                                                                                                                                                                           
| |     | 10.8     | Collateral Assignment and
  Security Agreement dated as of September 5, 2003 by and between
  Indian-Martin, Inc. and Bank One, National Association (j)                                                                                                                                                                                                                                                                                                               
| |     | 10.9     | Receivables Purchase
  Agreement dated as of September 5, 2003 by and between Indian-Martin, Inc.
  and Indian-Martin AG (j)                                                                                                                                                                                                                                                                                                                                           
| |     | 10.10    | Receivables Purchase
  Agreement dated as of September 5, 2003 by and between Indian-Martin, Inc.
  and Indian Industries, Inc.
  Substantially similar Receivables Purchase Agreements were also
  entered into by Indian-Martin, Inc. and each of Escalade, Incorporateds
  other domestic operating subsidiaries, Harvard Sports, Inc., Martin Yale
  Industries, Inc., Master Products Manufacturing Company, Inc., U.S. Weight,
  Inc. and Bear Archery, Inc. (j)
| |     | 10.11    | Services Agreement dated
  as of September 5, 2003 by and between Indian-Martin, Inc. and Martin Yale
  Industries, Inc. Substantially similar Services Agreements were also entered
  into by Indian-Martin, Inc. and each of Escalade, Incorporateds other
  domestic operating subsidiaries, Harvard Sports, Inc., Indian Industries,
  Inc., Master Products Manufacturing Company, Inc., U.S. Weight, Inc. and Bear
  Archery, Inc. (j)                          
| |     | 10.12    | Escalade Subordination
  Agreement dated as of September 5, 2003 between Escalade, Incorporated and
  Bank One, National Association (j)                                                                                                                                                                                                                                                                                                                               
| |     | 10.13    | Offset Waiver Agreement
  dated as of September 5, 2003 between Escalade, Incorporated, Bank One,
  National Association, Indian-Martin, Inc., Harvard Sports, Inc., Indian
  Industries, Inc., Martin Yale Industries, Inc., Master Products Manufacturing
  Company, Inc., U.S. Weight, Inc. and Bear Archery, Inc. (j)                                                                                                                                              

26

---



| |       |                                                                                                                                                                                                                                                                       
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.14 | Loan Agreement dated
  September 1, 1998 between Martin Yale Industries, Inc. and City of Wabash,
  Indiana (f)                                                                                                                                                       
| | 10.15 | Trust Indenture between
  the City of Wabash, Indiana and Bank One Trust Company, NA as Trustee dated
  September 1, 1998 relating to the Adjustable Rate Economic Development
  Revenue Refunding Bonds, Series 1998 (Martin Yale Industries, Inc.       Project) (f)
| | 10.16 | First Amendment to Credit
  Agreement dated September 5, 2003 by and between Indian-Martin, Inc. and Bank
  One, National Association, a national banking association. The Effective date
  of the Amendment was July 15, 2004. (k)                                   
| | 10.17 | Fourth amendment to
  amended and restated credit agreement dated June 1, 2003 by and between
  Escalade, Incorporated and Bank One, N.A. a national banking
  association.  The Effective date of
  amendment was July 15, 2004. (l)                                 
| | 10.18 | Euro revolving note dated
  July 15, 2004, in principal amount of 2,500,000, executed by Escalade,
  Incorporated in favor of Bank One, N.A., London branch. (l)                                                                                                     
| | 10.19 | Uncommitted overdraft
  facility not to exceed 1.0 million Euro and 500 thousand pounds sterling
  between Escalade, Incorporated and Bank One, N.A., London branch. (l)                                                                                              
| | 10.20 | Sixth Amendment to Amended
  and Restated Credit Agreement effective October 24, 2001 by and between
  Escalade, Incorporated and JPMorgan Chase Bank, NA. The effective date of the
  Amendment was May 19, 2006. (n)                                                
| | 10.21 | Seventh Amendment to
  Amended and Restated Credit Agreement effective October 24, 2001 by and
  between Escalade, Incorporated and JPMorgan Chase Bank, NA. The effective
  date of the Amendment was July 1, 2006. (n)                                              
| | 10.22 | Promissory Note between
  Escalade, Incorporated and JPMorgan Chase Bank, NA. Dated July 1, 2006. (n)                                                                                                                                                                 
| | 10.23 | Second Amendment to Credit
  Agreement dated September 5, 2003 by and between Indian-Martin, Inc. and
  JPMorgan Chase Bank, NA. The effective date of the Amendment was July 1,
  2006. (n)                                                                          
| | 10.24 | Promissory Note between
  Indian-Martin, Inc. and JPMorgan Chase Bank, NA. Dated July 1, 2006. (n)                                                                                                                                                                    
| | 10.25 | Eighth Amendment to
  Amended and Restated Credit Agreement effective October 24, 2001 by and
  between Escalade, Incorporated and JPMorgan Chase Bank, NA. The effective
  date of the Amendment was May 17, 2007. (p)                                               
| | 10.26 | Promissory note between
  Escalade, Incorporated and JPMorgan Chase Bank, NA dated May 17, 2007. (p)                                                                                                                                                                  
| | 10.27 | Promissory note between Escalade, Incorporated and JPMorgan Chase Bank,
  NA dated May 17, 2007. (p)                                                                                                                                                                  

| |     |                                                
| | --- | -----------------------------------------------
| | (4) | Executive
  Compensation Plans and Arrangements

| |       |                                                                                                                                                                      
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.25 | The Harvard Sports/Indian
  Industries, Inc. 401(k) Plan as amended and merged in 1993 (c)                                                                           
| | 10.26 | Martin Yale Industries,
  Inc. 401(k) Retirement Plan as amended in 1993 (c)                                                                                         
| | 10.27 | Incentive Compensation
  Plan for Escalade, Incorporated and its subsidiaries (a)                                                                                    
| | 10.28 | Example of contributory
  deferred compensation agreement between Escalade, Incorporated and certain
  management employees allowing for deferral of compensation (a)
| | 10.29 | 1997 Director Stock
  Compensation and Option Plan (e)                                                                                                               
| | 10.30 | 1997 Incentive Stock
  Option Plan (e)                                                                                                                               
| | 10.31 | 1997 Director Stock
  Compensation and Option Plan Certificate (m)                                                                                                   
| | 10.32 | 1997 Incentive Stock
  Option Plan Certificate (m)                                                                                                                   
| | 10.33 | Agreement dated April 19,
  2006 by and between Charles William Reed and Escalade, Incorporated
  (Management Contract) (n)                                          
| | 10.34 | Relocation and retention
  agreement dated July 24, 2006 by and between Escalade, Incorporated and Terry
  Frandsen. (Management Contract) (o)                       
| | 10.35 | Escalade, Incorporated
  2007 Incentive Plan, incorporated by reference herein from Annex 1 to the
  Registrants 2007 Definitive Proxy Statement. (p)               
| | 10.36 | Employment offer letter
  dated July 23, 2007 between Robert Keller and Escalade, Inc. (q)                                                                           
| | 10.37 | Form of Restricted Stock
  Unit Agreement utilized in Restricted Stock Unit grants pursuant to the
  Escalade Incorporated 2007 Incentive Plan. (r)                  
| | 10.38 | Escalade, Incorporated
  schedule of Directors Compensation                                                                                                          
| | 10.39 | Escalade, Incorporated
  schedule of Executive Officers Compensation                                                                                                 
| |       |                                                                                                                                                                      
| | 21    | Subsidiaries of the
  Registrant                                                                                                                                     

27

---



| |      |                                                                                       
| | ---- | --------------------------------------------------------------------------------------
| | 23.1 | Consent of
  BKD, LLP                                                                 
| | 23.2 | Consent of FALK & Co GmbH                                                             
| | 31.1 | Chief
  Executive Officer Rule 13a-14(a)/15d-14(a) Certification                      
| | 31.2 | Chief Financial
  Officer Rule 13a-14(a)/15d-14(a) Certification                      
| | 32.1 | Chief
  Executive Officer Section 1350 Certification                                  
| | 32.2 | Chief Financial Officer
  Section 1350 Certification                                  
| |      |                                                                                       
| | (a)  | Incorporated
  by reference from the Companys 20007 First Quarter Report on Form 10-Q
| | (b)  | Intentionally
  not used                                                              
| | (c)  | Incorporated
  by reference from the Companys 1993 Annual Report on Form 10-K        
| | (d)  | Incorporated
  by reference from the Companys 1995 Annual Report on Form 10-K        
| | (e)  | Incorporated
  by reference from the Companys 1997 Proxy Statement                   
| | (f)  | Incorporated
  by reference from the Companys 1998 Third Quarter Report on Form 10-Q 
| | (g)  | Incorporated
  by reference from the Companys 2001 Third Quarter Report on Form 10-Q 
| | (h)  | Incorporated
  by reference from the Companys 2002 Third Quarter Report on Form 10-Q 
| | (i)  | Incorporated
  by reference from the Companys 2003 Second Quarter Report on Form 10-Q
| | (j)  | Incorporated
  by reference from the Companys 2003 Third Quarter Report on Form 10-Q 
| | (k)  | Incorporated
  by reference from the Companys 2004 Second Quarter Report on Form 10-Q
| | (l)  | Incorporated
  by reference from the Companys 2004 Third Quarter Report on Form 10-Q 
| | (m)  | Incorporated
  by reference from the Companys 2004 Annual Report on Form 10-K        
| | (n)  | Incorporated
  by reference from the Companys 2006 Second Quarter Report on Form 10-Q
| | (o)  | Incorporated
  by reference from the Companys 2006 Third Quarter Report on Form 10-Q 
| | (p)  | Incorporated
  by reference from the Companys 2007 Second Quarter Report on Form 10-Q
| | (q)  | Incorporated
  by reference from the Companys 2007 Third Quarter Report on Form 10-Q 
| | (r)  | Incorporated
  by reference from the Companys Form 8-K filed on February 29, 2008    

28

---



ESCALADE,
INCORPORATED AND SUBSIDIARIES

Index to Financial
Statements

The following consolidated financial statements of the
Registrant and its subsidiaries and Independent Accountants Report are
submitted herewith:

|                                                                                                                                | Page
|------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                |     
|Report of
  Independent Registered Accounting Firm                                                                              | 30  
|                                                                                                                                |     
|Consolidated financial
  statements of Escalade, Incorporated and subsidiaries:                                                 |     
|                                                                                                                                |     
|Consolidated balance
sheetsDecember 29, 2007 and
  December 30, 2006                                                           | 32  
|                                                                                                                                |     
|Consolidated statements of
incomefiscal years ended
  December 29, 2007, December 30, 2006 and December 31, 2005               | 33  
|                                                                                                                                |     
|Consolidated statements of
stockholders equityfiscal
  years ended December 29, 2007, December 30, 2006 and December 31, 2005 | 34  
|                                                                                                                                |     
|Consolidated statements of cash
flowsfiscal years ended December 29, 2007,  December 30,
  2006 and December 31, 2005          | 35  
|                                                                                                                                |     
|Notes to consolidated financial
statements                                                                                      | 36  

29

---



(BKD LLP LOGO)

Report
of Independent Registered Public Accounting Firm

Audit Committee, Board of
Directors and Stockholders
Escalade, Incorporated
Evansville, Indiana

We have audited the accompanying
consolidated balance sheets of Escalade, Incorporated (Company) as of December
29, 2007 and December 30, 2006, and the related consolidated statements of
income, stockholders equity and cash flows for each of the years in the
three-year period ended December 29, 2007.
The Companys management is responsible for these financial
statements.  Our responsibility is to
express an opinion on these financial statements based on our audits.  We did not audit the 2007, 2006 and 2005
consolidated financial statements of Martin Yale International, GmbH, a wholly
owned subsidiary, which consolidated statements reflect total assets of
$22,944, $28,391 and $24,132 and net sales of $30,943, $24,378 and $31,923
(dollars in thousands) for 2007, 2006 and 2005, respectively, included in the
related consolidated financial statement amounts as of and for the years ended
December 29, 2007, December 30, 2006 and December 31, 2005.  Those consolidated statements were audited
by other accountants, whose reports have been furnished to us and our opinion,
insofar as it relates to the amounts included for Martin Yale International,
GmbH, is based solely on the reports of the other accountants.

Our audits also included
auditing the adjustments to convert the financial statements of Martin Yale
International, GmbH into accounting principles generally accepted in the United
States of America for purposes of consolidation.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United
States).   Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  Our audits included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement
presentation.  We believe that our
audits and the reports of the other accountants provide a reasonable basis for
our opinion.

In our opinion, based on our
audits and the reports of the other accountants, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 29, 2007, and December 30,
2006, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 29, 2007, in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 1 to
the consolidated financial statements, the Company adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, effective
December 31, 2006.

We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Companys internal control over financial reporting as of
December 29, 2007, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated March 10, 2008, expressed an unqualified opinion on
the effectiveness of the Companys internal control over financial reporting.

BKD, LLP Evansville, IndianaMarch 10, 2008

30

---



(FALK & Co LOGO)

Report of Independent Registered Public Accounting
Firm

To the Stockholders and
Board of Directors Martin Yale International
GmbH,  Markdorf/Germany

We have audited the balance sheets of Martin Yale
International GmbH, Markdorf/Germany (Company) as of December 31, 2007 and
December 30, 2006, and the related statements of income for each of the years
in the three-year period ended December 31, 2007. The Companys management is
responsible for these financial statements.
Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement.  Our audits
included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits the financial
statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2007, and December 30,
2006, and the results of its operations for each of the years in the three-year
period ended December 31, 2007, in conformity with accounting principles
generally accepted in Germany.

We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United States), the Companys
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated March 10, 2008, expressed an unqualified opinion on
the effectiveness of the Companys internal control over financial reporting.

FALK & Co GmbH
Wirtschaftsprüfungsgesellschaft
Steuerberatungsgesellschaft

Heidelberg, Germany March 10, 2008

31

---



ESCALADE,
INCORPORATED ANDSUBSIDIARIESConsolidated
Balance Sheets

|                                                                             |  |                |         |                |   |         | 
|---------------------------------------------------------------------------- |  | -------------- | ------- | -------------- | - | ------- | 
|All Amounts in Thousands
  Except Share Information                          |  | December
  29, |         | December
  30, |  
|                                                                             |  | 2007           |         | 2006           |  
|                                                                            
|Assets                                                                       |  |                |         |                |   |         | 
|Current assets                                                               |  |                |         |                |   |         | 
|Cash and cash
  equivalents                                                  |  | $              | 2,808   |                | $ | 3,829   | 
|Receivables,
  less allowances of $1,087 and $1,559                          |  |                | 30,639  |                |   | 33,590  | 
|Inventories                                                                  |  |                | 32,541  |                |   | 32,232  | 
|Prepaid expenses                                                             |  |                | 2,551   |                |   | 2,085   | 
|Deferred income
  tax benefit                                                |  |                | 1,399   |                |   | 733     | 
|Prepaid income
  tax                                                         |  |                | 860     |                |   | 2,001   | 
|                                                                             |  |                |         |                |  
|Total current
  assets                                                       |  |                | 70,798  |                |   | 74,470  | 
|                                                                             |  |                |         |                |   |         | 
|Property, plant
  and equipment, net                                         |  |                | 20,391  |                |   | 20,657  | 
|Intangible
  assets                                                          |  |                | 21,012  |                |   | 20,608  | 
|Goodwill                                                                     |  |                | 25,803  |                |   | 25,027  | 
|Investments                                                                  |  |                | 12,473  |                |   | 9,011   | 
|Interest rate
  swap                                                         |  |                | 54      |                |   | 239     | 
|Other assets                                                                 |  |                | 1,485   |                |   | 703     | 
|                                                                             |  |                |         |                |  
|Total assets                                                                 |  | $              | 152,016 |                | $ | 150,715 | 
|                                                                             |  |                |         |                |  
|                                                                             |  |                |         |                |   |         | 
|Liabilities and Stockholders Equity                                         |  |                |         |                |   |         | 
|Current
  liabilities                                                        |  |                |         |                |   |         | 
|Notes
  payablebank                                                         |  |                | 13,033  |                | $ | 10,336  | 
|Trade accounts
  payable                                                     |  |                | 2,938   |                |   | 3,350   | 
|Accrued
  liabilities                                                        |  |                | 23,216  |                |   | 27,659  | 
|Income tax
  payable                                                         |  |                | 169     |                |   |        | 
|                                                                             |  |                |         |                |  
|Total current
  liabilities                                                  |  |                | 39,356  |                |   | 41,345  | 
|                                                                             |  |                |         |                |   |         | 
|Long-term debt                                                               |  |                | 19,135  |                |   | 22,609  | 
|Other
  non-current income tax liability                                     |  |                | 118     |                |   |        | 
|Deferred income
  tax liability                                              |  |                | 589     |                |   |        | 
|Deferred
  compensation                                                      |  |                | 1,076   |                |   | 1,046   | 
|                                                                             |  |                |         |                |  
|Total
  liabilities                                                          |  |                | 60,274  |                |   | 65,000  | 
|                                                                             |  |                |         |                |   |         | 
|Commitments and contingencies                                                |  |                |        |                |   |        | 
|                                                                             |  |                |         |                |   |         | 
|Stockholders equity                                                         |  |                |         |                |   |         | 
|Preferred stock                                                              |  |                |         |                |   |         | 
|Authorized:  1,000,000 shares, no par value, none
  issued                   |  |                |         |                |   |         | 
|Common stock                                                                 |  |                |         |                |   |         | 
|Authorized:  30,000,000 shares, no par
value                                 |  |                |         |                |   |         | 
|Issued and
  outstanding:  2007 12,673,149 shares,
  200613,039,457 shares |  |                | 12,673  |                |   | 13,039  | 
|Retained
  earnings                                                          |  |                | 73,246  |                |   | 69,194  | 
|Accumulated
  other comprehensive income                                     |  |                | 5,823   |                |   | 3,482   | 
|                                                                             |  |                |         |                |  
|Total
  stockholders equity                                                 |  |                | 91,742  |                |   | 85,715  | 
|                                                                             |  |                |         |                |  
|Total
  liabilities and stockholders equity                                 |  | $              | 152,016 |                | $ | 150,715 | 
|                                                                             |  |                |         |                |  

See notes to consolidated financial statements.

32

---



ESCALADE,
INCORPORATED AND SUBSIDIARIESConsolidated
Statements of Income

|                                                 |  |                |         |                |   |                |   |   |         |  
|------------------------------------------------ |  | -------------- | ------- | -------------- | - | -------------- | - | - | ------- | -
|                                                 |  | Years
  Ended 
|                                                 |  |               
|                                                 |  | December
  29, |         | December
  30, |   | December
  31, |  
|All Amounts in Thousands
  Except Per Share Data |  | 2007           |         | 2006           |   | 2005           |  
|                                                
|                                                
|Net Sales                                        |  | $              | 185,576 |                | $ | 191,465        |   | $ | 183,315 |  
|                                                 |  |                |         |                |   |                |   |   |         |  
|Costs, Expenses and Other
  Income               |  |                |         |                |   |                |   |   |         |  
|Cost of products
  sold                          |  |                | 131,389 |                |   | 137,821        |   |   | 127,719 |  
|Selling,
  administrative and general expenses   |  |                | 38,462  |                |   | 39,466         |   |   | 36,312  |  
|Restructuring
  costs                            |  |                |        |                |   |               |   |   | (631    | )
|Amortization                                     |  |                | 2,657   |                |   | 2,343          |   |   | 1,210   |  
|                                                 |  |                |         |                |   |                |  
|                                                 |  |                |         |                |   |                |   |   |         |  
|Operating Income                                 |  |                | 13,068  |                |   | 11,835         |   |   | 18,705  |  
|                                                 |  |                |         |                |   |                |   |   |         |  
|Interest expense                                 |  |                | (2,837  | )              |   | (2,637         | ) |   | (1,482  | )
|Other income                                     |  |                | 3,991   |                |   | 2,263          |   |   | 2,036   |  
|                                                 |  |                |         |                |   |                |  
|                                                 |  |                |         |                |   |                |   |   |         |  
|Income Before Income Taxes                       |  |                | 14,222  |                |   | 11,461         |   |   | 19,259  |  
|                                                 |  |                |         |                |   |                |   |   |         |  
|Provision for Income Taxes                       |  |                | 4,967   |                |   | 2,966          |   |   | 6,343   |  
|                                                 |  |                |         |                |   |                |  
|                                                 |  |                |         |                |   |                |   |   |         |  
|Net Income                                       |  | $              | 9,255   |                | $ | 8,495          |   | $ | 12,916  |  
|                                                 |  |                |         |                |   |                |  
|                                                 |  |                |         |                |   |                |   |   |         |  
|Earnings Per Share Data                          |  |                |         |                |   |                |   |   |         |  
|Basic earnings
  per share                       |  | $              | 0.72    |                | $ | 0.65           |   | $ | 0.99    |  
|                                                 |  |                |         |                |   |                |  
|Diluted earnings
  per share                     |  | $              | 0.72    |                | $ | 0.65           |   | $ | 0.98    |  
|                                                 |  |                |         |                |   |                |  

See notes to consolidated financial statements.

33

---



ESCALADE, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Stockholders Equity

|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|-------------------------------------------------------------------- |  | -------------- | ------ | -------- | - | ------------- | - | ----------- | ------ | ----- | - | ------ | - | - | ------ | -
|                                                                     |  |                |        |          |   |               |   | Accumulated |        |       |  
|                                                                     |  | Common
  Stock |        |          |   | Other         |   |             |       
|                                                                     |  |                |        | Retained |   | Comprehensive |   |             |        |      
|All Amounts in Thousands                                             |  | Shares         |        | Amount   |   | Earnings      |   | Income      |        | Total |  
|                                                                     | 
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Balances
  at December 25, 2004                                      |  |                | 13,031 |          |   | 13,031        |   |             | 53,450 |       |   | 4,553  |   |   | 71,034 |  
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Comprehensive income                                                 |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Net income                                                           |  |                |        |          |   |               |   |             | 12,916 |       |   |        |   |   | 12,916 |  
|Unrealized loss on securities, net of tax                            |  |                |        |          |   |               |   |             |        |       |   | (78    | ) |   | (78    | )
|Foreign currency translation adjustment                              |  |                |        |          |   |               |   |             |        |       |   | (3,893 | ) |   | (3,893 | )
|Unrealized gain on interest rate swap agreement, net of tax          |  |                |        |          |   |               |   |             |        |       |   | 368    |   |   | 368    |  
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |       
|Total comprehensive income                                           |  |                |        |          |   |               |   |             |        |       |   |        |   |   | 9,313  |  
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Exercise of stock options                                            |  |                | 82     |          |   | 82            |   |             | 231    |       |   |        |   |   | 313    |  
|Dividend paid                                                        |  |                |        |          |   |               |   |             | (1,961 | )     |   |        |   |   | (1,961 | )
|Stock issued under the director stock option plan                    |  |                | 6      |          |   | 6             |   |             | 90     |       |   |        |   |   | 96     |  
|Purchase of stock                                                    |  |                | (172   | )        |   | (172          | ) |             | (2,000 | )     |   |        |   |   | (2,172 | )
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Balances
  at December 31, 2005                                      |  |                | 12,947 |          |   | 12,947        |   |             | 62,726 |       |   | 950    |   |   | 76,623 |  
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Comprehensive income                                                 |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Net income                                                           |  |                |        |          |   |               |   |             | 8,495  |       |   |        |   |   | 8,495  |  
|Unrealized gain on securities, net of tax                            |  |                |        |          |   |               |   |             |        |       |   | 278    |   |   | 278    |  
|Realization of previously unrealized gains on securities, net of tax |  |                |        |          |   |               |   |             |        |       |   | (189   | ) |   | (189   | )
|Foreign currency translation adjustment                              |  |                |        |          |   |               |   |             |        |       |   | 2,405  |   |   | 2,405  |  
|Unrealized gain on interest rate swap agreement, net of tax          |  |                |        |          |   |               |   |             |        |       |   | 38     |   |   | 38     |  
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |       
|Total comprehensive income                                           |  |                |        |          |   |               |   |             |        |       |   |        |   |   | 11,027 |  
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Expense of stock options                                             |  |                |        |          |   |               |   |             | 588    |       |   |        |   |   | 588    |  
|Exercise of stock options                                            |  |                | 226    |          |   | 226           |   |             | 1,238  |       |   |        |   |   | 1,464  |  
|Dividend paid                                                        |  |                |        |          |   |               |   |             | (2,604 | )     |   |        |   |   | (2,604 | )
|Stock issued under the director stock option plan                    |  |                | 10     |          |   | 10            |   |             | 131    |       |   |        |   |   | 141    |  
|Purchase of stock                                                    |  |                | (144   | )        |   | (144          | ) |             | (1,380 | )     |   |        |   |   | (1,524 | )
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Balances
  at December 30, 2006                                      |  |                | 13,039 |          | $ | 13,039        |   | $           | 69,194 |       | $ | 3,482  |   | $ | 85,715 |  
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Comprehensive income                                                 |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Net income                                                           |  |                |        |          |   |               |   |             | 9,255  |       |   |        |   |   | 9,255  |  
|Unrealized gain on securities, net of tax                            |  |                |        |          |   |               |   |             |        |       |   | 128    |   |   | 128    |  
|Foreign currency translation adjustment                              |  |                |        |          |   |               |   |             |        |       |   | 2,333  |   |   | 2,333  |  
|Unrealized loss on interest rate swap agreement, net of tax          |  |                |        |          |   |               |   |             |        |       |   | (120   | ) |   | (120   | )
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |       
|Total comprehensive income                                           |  |                |        |          |   |               |   |             |        |       |   |        |   |   | 11,596 |  
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Adjustment to initially apply FASB Interpretation No. 48             |  |                |        |          |   |               |   |             | (265   | )     |   |        |   |   | (265   | )
|Expense of stock options                                             |  |                |        |          |   |               |   |             | 680    |       |   |        |   |   | 680    |  
|Exercise of stock options                                            |  |                | 18     |          |   | 18            |   |             | 122    |       |   |        |   |   | 140    |  
|Dividend paid                                                        |  |                |        |          |   |               |   |             | (2,866 | )     |   |        |   |   | (2,866 | )
|Stock issued to directors as compensation                            |  |                | 15     |          |   | 15            |   |             | 128    |       |   |        |   |   | 143    |  
|Purchase of stock                                                    |  |                | (399   | )        |   | (399          | ) |             | (3,002 | )     |   |        |   |   | (3,401 | )
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  
|Balances
  at December 29, 2007                                      |  |                | 12,673 |          | $ | 12,673        |   | $           | 73,246 |       | $ | 5,823  |   | $ | 91,742 |  
|                                                                     |  |                |        |          |   |               |   |             |        |       |   |        |   |   |        |  

See notes to consolidated financial statements.

34

---



ESCALADE, INCORPORATED AND SUBSIDIARIES Consolidated Statements of Cash Flows(All Amounts in Thousands)

|                                                                                   |  |              |        |             |   |             |   |   |         |  
|---------------------------------------------------------------------------------- |  | ------------ | ------ | ----------- | - | ----------- | - | - | ------- | -
|                                                                                   |  | December 29, |        | December 30 |   | December 31 |  
|Years Ended                                                                        |  | 2007         |        | 2006        |   | 2005        |  
|                                                                                   | 
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|Operating
  Activities                                                             |  |              |        |             |   |             |   |   |         |  
|Net income                                                                         |  | $            | 9,255  |             | $ | 8,495       |   | $ | 12,916  |  
|Adjustments to reconcile
  net income to net cash provided by operating activities |  |              |        |             |   |             |   |   |         |  
|Depreciation and
  amortization                                                    |  |              | 6,044  |             |   | 5,649       |   |   | 4,735   |  
|Provision for
  doubtful accounts                                                  |  |              | (533   | )           |   | 116         |   |   | 561     |  
|Stock option
  expense                                                             |  |              | 680    |             |   | 588         |   |   |        |  
|Deferred income
  taxes                                                            |  |              | 284    |             |   | 436         |   |   | 413     |  
|Provision for
  deferred compensation                                              |  |              | 92     |             |   | 108         |   |   | 116     |  
|Deferred
  compensation paid                                                       |  |              | (62    | )           |   | (411        | ) |   |        |  
|(Gain) loss on
  disposals of assets                                               |  |              | (57    | )           |   | (98         | ) |   | 226     |  
|Changes in                                                                         |  |              |        |             |   |             |   |   |         |  
|Accounts
  receivable                                                              |  |              | 4,300  |             |   | 1,663       |   |   | 13,553  |  
|Inventories                                                                        |  |              | 1,091  |             |   | 5,543       |   |   | (2,868  | )
|Prepaids                                                                           |  |              | (1,207 | )           |   | (86         | ) |   | (122    | )
|Other assets                                                                       |  |              | (1,036 | )           |   | (807        | ) |   | (1,706  | )
|Income tax
  payable                                                               |  |              | 1,106  |             |   | (1,836      | ) |   | 3,066   |  
|Accounts payable
  and accrued expenses                                            |  |              | (5,646 | )           |   | 539         |   |   | (6,258  | )
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|Net cash provided by
  operating activities                                        |  |              | 14,311 |             |   | 19,899      |   |   | 24,632  |  
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|Investing
  Activities                                                             |  |              |        |             |   |             |   |   |         |  
|Change in cash
  surrender value, net of loans and premiums                        |  |              | 12     |             |   | (43         | ) |   |        |  
|Purchase of
  property and equipment                                               |  |              | (2,387 | )           |   | (2,683      | ) |   | (8,395  | )
|Purchase of
  long-term investments                                                |  |              |       |             |   | (192        | ) |   |        |  
|Acquisitions,
  net of cash acquired                                               |  |              | (4,177 | )           |   | (28,759     | ) |   | (3,213  | )
|Proceeds from
  sale of property and equipment                                     |  |              | 200    |             |   | 142         |   |   | 70      |  
|Retirement of
  life insurance policies                                            |  |              | 294    |             |   | 1,036       |   |   |        |  
|Proceeds from
  sale of investments                                                |  |              |       |             |   | 952         |   |   |        |  
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|Net cash used by
  investing activities                                            |  |              | (6,058 | )           |   | (29,547     | ) |   | (11,538 | )
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|Financing
  Activities                                                             |  |              |        |             |   |             |   |   |         |  
|Net increase
  (decrease) in notes payablebank                                    |  |              | (777   | )           |   | 12,898      |   |   | (7,597  | )
|Proceeds from
  exercise of stock options                                          |  |              | 140    |             |   | 1,464       |   |   | 313     |  
|Reduction of
  long-term debt                                                      |  |              |       |             |   |            |   |   | (354    | )
|Purchase of
  stock                                                                |  |              | (3,401 | )           |   | (1,524      | ) |   | (2,172  | )
|Cash dividend
  paid                                                               |  |              | (2,866 | )           |   | (2,604      | ) |   | (1,961  | )
|Directors
  compensation                                                           |  |              | 143    |             |   | 141         |   |   | 96      |  
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|Net cash provided
  (used) by financing activities                                 |  |              | (6,761 | )           |   | 10,375      |   |   | (11,675 | )
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|Effect of
  Exchange Rate Changes on Cash                                          |  |              | (2,513 | )           |   | 85          |   |   | (1,452  | )
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|Increase
  (Decrease) in Cash and Cash Equivalents                                 |  |              | (1,021 | )           |   | 812         |   |   | (33     | )
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|Cash and Cash
  Equivalents, Beginning of Year                                     |  |              | 3,829  |             |   | 3,017       |   |   | 3,050   |  
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|Cash and Cash
  Equivalents, End of Year                                           |  | $            | 2,808  |             | $ | 3,829       |   | $ | 3,017   |  
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|                                                                                   |  |              |        |             |   |             |   |   |         |  
|Supplemental
  Cash Flows Information                                              |  |              |        |             |   |             |   |   |         |  
|Interest paid                                                                      |  | $            | 2,831  |             | $ | 2,630       |   | $ | 1,815   |  
|Income taxes
  paid                                                                |  | $            | 3,324  |             | $ | 2,512       |   | $ | 5,561   |  

See notes to consolidated financial statements.

35

---



ESCALADE,
INCORPORATED ANDSUBSIDIARIESNotes to Consolidated Financial Statements

Note 1 
Nature of Operations and Summary of Significant Accounting Policies

Nature of OperationsEscalade, Incorporated
and its wholly owned subsidiaries (the Company) are engaged in the
manufacture and sale of sporting goods and office products.  The Company is headquartered in Evansville,
Indiana and has manufacturing facilities in the United States of America,
Mexico and Germany.  The Company sells
products to customers throughout the world.

Principles of ConsolidationThe consolidated
financial statements include the accounts of Escalade, Incorporated and its
wholly-owned subsidiaries.  All material
inter-company accounts and transactions have been eliminated.

Basis of PresentationThe consolidated
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The books and
records of Subsidiaries located in foreign countries are maintained according to
generally accepted accounting principles in those countries. Upon consolidation
the Company evaluates the differences in accounting principles and determines
whether adjustments are necessary to convert the foreign financial statements
to the accounting principles upon which the consolidated financial statements
are based. As a result of this evaluation no material adjustments were
identified.

Fiscal Year EndThe Companys fiscal
year is a 52 or 53 week period ending on the last Saturday in December.  Fiscal 2007 and 2006 were 52 weeks long
ending on December 29, 2007 and December 30, 2006, respectively. Fiscal 2005
was 53 weeks long ending on December 31, 2005.

Cash and Cash
EquivalentsHighly liquid
financial instruments with insignificant interest rate risk and with original
maturities of three months or less are classified as cash and cash equivalents.

Fair Values of Financial InstrumentsFair values of cash
equivalents approximate cost due to the short period of time to maturity.  Fair values of long-term investments,
non-marketable debt investments, short-term debt, long-term debt and swaps, are
based on quoted market prices or pricing models using current market rates. The
Company believes the carrying value of short-term debt and long-term debt adequately
reflects the fair value of these instruments. For the Companys portfolio of
non-marketable equity securities, management believes that the carrying value
of the portfolio approximates the fair value at December 29, 2007.  All of the estimated fair values, except for
marketable equity securities available for sale, are based on managements
estimates because there is no readily available market. Consequently, the
estimated fair value may not necessarily represent the amounts that could be
realized in a current transaction, and these fair values could change
significantly.

Accounts ReceivableRevenue from the sale
of the Companys products is recognized as products are shipped to customers
and accounts receivable are stated at the amount billed to customers. Interest
and late charges billed to customers are not material and because collection is
uncertain, are not recognized until collected and are therefore not included in
accounts receivable. The Company does not offer the right of return on any of its
sales and the Company does not engage in consignment or contingency sales. The
Company provides an allowance for doubtful accounts which is described in Note
2  Certain Significant Estimates.

36

---



ESCALADE,
INCORPORATED ANDSUBSIDIARIES
Notes to Consolidated Financial Statements

InventoriesInventory cost is
computed on a currently adjusted standard cost basis (which approximates actual
cost on a current average or first-in, first-out basis). Work in process and
finished goods inventory are determined to be saleable based on a demand
forecast within a specific time horizon, generally one year or less.  Inventory in excess of saleable amounts is
reserved, and the remaining inventory is valued at the lower cost or market.
This inventory valuation reserve totaled $3.6 million and $2.7 million at
fiscal year-end 2007 and 2006, respectively.
Inventories, net of the valuation reserve, at fiscal year-ends were as
follows:

|                |  |      |        |      |   |        | 
|--------------- |  | ---- | ------ | ---- | - | ------ | 
|In Thousands    |  | 2007 |        | 2006 |  
|                |  |      |        |      |   |        | 
|                |  |      |        |      |   |        | 
|Raw materials   |  | $    | 9,188  |      | $ | 7,786  | 
|Work in process |  |      | 7,032  |      |   | 6,021  | 
|Finished goods  |  |      | 16,321 |      |   | 18,425 | 
|                |  |      |        |      |   |        | 
|                |  | $    | 32,541 |      | $ | 32,232 | 
|                |  |      |        |      |   |        | 

Property, Plant and
EquipmentProperty, plant and equipment are recorded at cost.  Depreciation and amortization are computed
for financial reporting purposes principally using the straight-line method
over the following estimated useful lives:
buildings, 20-30 years; leasehold improvements, term of the lease;
machinery and equipment, 5-15 years; and tooling, dies and molds, 2-4 years.
Property, plant and equipment consist of the following:

|                                          |  |      |         |      |   |         |  
|----------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|In Thousands                              |  | 2007 |         | 2006 |  
|                                          |  |      |         |      |   |         |  
|                                          |  |      |         |      |   |         |  
|Land                                      |  | $    | 2,902   |      | $ | 2,780   |  
|Buildings and leasehold improvements      |  |      | 20,784  |      |   | 20,450  |  
|Machinery and equipment                   |  |      | 33,912  |      |   | 32,561  |  
|                                          |  |      |         |      |   |         |  
|Total cost                                |  |      | 57,598  |      |   | 55,791  |  
|Accumulated depreciation and
amortization |  |      | (37,207 | )    |   | (35,134 | )
|                                          |  |      |         |      |   |         |  
|                                          |  | $    | 20,391  |      | $ | 20,657  |  
|                                          |  |      |         |      |   |         |  

InvestmentsInvestments are composed of the
following:

|                                                  |  |      |        |      |   |       | 
|------------------------------------------------- |  | ---- | ------ | ---- | - | ----- | 
|In Thousands                                      |  | 2007 |        | 2006 |  
|                                                  |  |      |        |      |   |       | 
|                                                  |  |      |        |      |   |       | 
|Marketable equity securities available for
sale   |  | $    | 4,496  |      | $ | 2,843 | 
|Non-marketable equity investments (equity
method) |  |      | 7,977  |      |   | 6,168 | 
|                                                  |  |      |        |      |   |       | 
|                                                  |  | $    | 12,473 |      | $ | 9,011 | 
|                                                  |  |      |        |      |   |       | 

Marketable
Equity Securities Available for Sale.  This consists of marketable equity securities
recorded at fair value. The unrealized gains and losses, net of tax, are
reported in accumulated other comprehensive income. Summarized financial data
for these securities at fiscal year-end were as follows:

|                              |  |      |       |      |   |       | 
|----------------------------- |  | ---- | ----- | ---- | - | ----- | 
|In Thousands                  |  | 2007 |       | 2006 |  
|                              |  |      |       |      |   |       | 
|                              |  |      |       |      |   |       | 
|Cost basis                    |  | $    | 4,119 |      | $ | 2,539 | 
|Unrealized gain               |  |      | 377   |      |   | 304   | 
|                              |  |      |       |      |   |       | 
|Approximate fair market value |  | $    | 4,496 |      | $ | 2,843 | 
|                              |  |      |       |      |   |       | 

Non-Marketable Equity
Investments.  TheCompany has minority equity positions in companies strategically
related to the Companys business, but does not have control over these
companies. The accounting method employed is dependent on the level of
ownership and degree of influence the Company can exert on operations. Where
the equity interest is less than 20% and the degree of influence is not
significant, the cost method of accounting is employed. Where the equity
interest is greater than 20% but not more than 50%, the equity method of
accounting is utilized. Under the equity method, the Companys proportionate
share of net income (loss) is recorded in other income on the consolidated
statement of income. The proportionate share of net income was $1,354 thousand,
$1,290 thousand and $1,455 thousand in 2007, 2006 and 2005, respectively. Total
cash dividends received from these equity investments amounted to $39 thousand,
$434 thousand, and $638 thousand in 2007, 2006 and 2005, respectively. The
Company considers whether the fair values of any of its equity investments have
declined below their carrying value whenever adverse events or changes in
circumstances indicate that recorded values may not be recoverable. If the
Company considered any such decline to be other than temporary (based on
various factors, including historical financial results, product development
activities and overall health of the investments industry), a write-down is
recorded to estimated fair value.

37

---



ESCALADE,
INCORPORATED ANDSUBSIDIARIES
Notes to Consolidated Financial Statements

Intangible AssetsThe Company has
various intangible assets including consulting agreements, patents, trademarks,
non-competition agreements and goodwill.
Amortization is computed using the straight-line method over the
following lives:  consulting agreements,
the life of the agreement; non-compete agreements, the lesser of the term or 5
years; and patents, the lesser of the remaining life or 5 to 8 years.  Trademarks are deemed to have indefinite
useful lives and accordingly are not amortized, but evaluated on an annual
basis to determine whether any impairment in value has occurred.

Employee Incentive
PlanDuring 2007, the
Company replaced two stock-based compensation plans with a new incentive plan
more fully explained in Note 10. Beginning on January 1, 2006, the
Company adopted the fair value recognition provisions of Statement of Financial
Accounting Standards (SFAS) No. 123R, Share-Based Payment selecting the modified
prospective application.  Accordingly,
after January 1, 2006, the Company began expensing the fair value of stock
options and restricted stock units granted, modified, repurchased or cancelled.

Prior to 2006, the Company
accounted for these plans under the recognition and measurement principles of
APB Opinion No. 25, Accounting for Stock issued to Employees,
and related interpretations. Accordingly, in 2005 no stock-based employee
compensation cost is reflected in net income, as all options granted under this
plan had an exercise price equal to the market value of the underlying common
stock at the grant date.

Foreign Currency TranslationThe functional
currency for the foreign operations of Escalade is the local currency. The
translation of foreign currencies into U.S. dollars is performed for balance
sheet accounts using exchange rates in effect at the balance sheet dates and
for revenue and expense accounts using a weighted average exchange rate during
the year. The gains or losses resulting from the translation are included in Accumulated Other Comprehensive Income (Loss)
in the Consolidated Statements of
Stockholders Equity and are excluded from net income. Gains or losses
resulting from foreign currency transactions are included in selling, general and administrative  expense in the
Consolidated Statements of Income and were insignificant
in fiscal years 2007, 2006, and 2005.

Cost of Products SoldCost of products sold are comprised of those costs
directly associated with or allocated to the products sold and include
materials, labor and factory overhead.

Other IncomeThe components of Other Income are as follows:

|                                                                                   |  |      |       |      |   |       |  |   |       | 
|---------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | - | ----- | 
|In Thousands                                                                       |  | 2007 |       | 2006 |   | 2005  | 
|                                                                                   |  |      |       |      |   |       |  |   |       | 
|                                                                                   |  |      |       |      |   |       |  |   |       | 
|Income from
  non-marketable equity investments accounted for on the equity method |  | $    | 1,354 |      | $ | 1,290 |  | $ | 1,460 | 
|Dividend and
  interest income from marketable equity securities held for sale     |  |      | 390   |      |   | 193   |  |   | 168   | 
|Gain on sale of
  marketable equity securities held for sale                       |  |      |      |      |   | 315   |  |   |      | 
|Royalty income
  from patents                                                      |  |      | 639   |      |   | 456   |  |   | 382   | 
|Gain on sale of
  rights to license future potential intellectual property         |  |      | 1,500 |      |   |      |  |   |      | 
|Other                                                                              |  |      | 108   |      |   | 9     |  |   | 26    | 
|                                                                                   |  |      |       |      |   |       |  |   |       | 
|                                                                                   |  | $    | 3,991 |      | $ | 2,263 |  | $ | 2,036 | 
|                                                                                   |  |      |       |      |   |       |  |   |       | 

38

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ESCALADE,
INCORPORATED ANDSUBSIDIARIES
Notes to Consolidated Financial Statements

Income TaxesIncome tax in the
consolidated statement of income includes deferred income tax provisions or
benefits for all significant temporary differences in recognizing income and
expenses for financial reporting and income tax purposes. A valuation allowance
is established if it is more likely than not that a deferred tax asset will not
be realized.

Research and DevelopmentResearch and
development costs are charged to expense as incurred.  Research and development costs incurred during 2007, 2006 and
2005 were approximately $2,330 thousand, $2,170 thousand, and $1,991 thousand,
respectively.

ReclassificationsCertain
reclassifications have been made to prior year financial statements to conform
to the current year financial statement presentation.  These reclassifications had no effect on net earnings.

New Accounting PronouncementsIn July 2006, the
Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement No. 109 (FIN 48), which became effective for the Company on
December 31, 2006. The Interpretation prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those
benefits to be recognized, a tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities. The amount recognized is
measured as the largest amount of benefit that is greater than 50 percent
likely of being realized upon ultimate settlement. The adoption of FIN 48
during the first quarter of 2007 resulted in a transition adjustment reducing
beginning retained earnings by $264 thousand; $164 thousand in taxes and $100
thousand in interest. If recognized, the tax portion of the adjustment would
affect the effective tax rate. Interest costs and penalties related to income
taxes are classified as interest expense and selling, general and
administrative costs, respectively in the Companys financial statements. Tax
returns for all years after 2003 are subject to future examination by tax
authorities.

In September 2006, the
FASB issued Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (Statement No. 157) which defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. Statement No. 157 applies to other accounting
pronouncements that require or permit fair value measurements and, accordingly,
does not require any new fair value measurements. Statement No. 157 is
effective for fiscal years beginning after November 15, 2007 for financial
assets and liabilities, as well as for any other assets and liabilities that
are carried at fair value on a recurring basis, and should be applied
prospectively. The adoption of the provisions of Statement No. 157 related
to financial assets and liabilities and other assets and liabilities that are
carried at fair value on a recurring basis is not anticipated to materially
impact the companys consolidated financial position and results of operations.
Subsequently, the FASB provided for a one-year deferral of the provisions of
Statement No. 157 for non-financial assets and liabilities that are
recognized or disclosed at fair value in the consolidated financial statements
on a non-recurring basis. There was no impact on the Companys financial
statements as a result of adopting the provisions of Statement No. 157 for
non-financial assets and liabilities that are recognized or disclosed on a
non-recurring basis.

In December 2007, the
FASB issued Statement of Financial Accounting Standards No. 141 (revised
2007), Business Combinations (Statement No. 141(R)). Statement
No. 141(R) changes the requirements for an acquirers recognition and
measurement of the assets acquired and the liabilities assumed in a business combination.
Statement No. 141(R) is effective for annual periods beginning after
December 15, 2008 and should be applied prospectively for all business
combinations entered into after the date of adoption.

39

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ESCALADE,
INCORPORATED ANDSUBSIDIARIES
Notes to Consolidated Financial Statements

In December 2007, the
FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements  an amendment
of ARB No. 51 (Statement No. 160). Statement No. 160 requires
(i) that noncontrolling (minority) interests be reported as a
component of shareholders equity, (ii) that net income attributable to
the parent and to the noncontrolling interest be separately identified in the
consolidated statement of operations, (iii) that changes in a parents
ownership interest while the parent retains its controlling interest be
accounted for as equity transactions, (iv) that any retained
noncontrolling equity investment upon the deconsolidation of a subsidiary be
initially measured at fair value, and (v) that sufficient disclosures are
provided that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. Statement No. 160
is effective for annual periods beginning after December 15, 2008 and
should be applied prospectively. However, the presentation and disclosure
requirements of the statement shall be applied retrospectively for all periods
presented. The adoption of the provisions of Statement No. 160 is not
anticipated to materially impact the companys consolidated financial position
and results of operations.

Note 2 
Certain Significant Estimates

The preparation of consolidated
financial statements in conformity with GAAP requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities; the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements; and the
reported amounts of revenues and expenses during the reporting period. These
estimates and judgments are evaluated on an ongoing basis and are based on
experience; current and expected future conditions; third party evaluations;
and various other assumptions believed reasonable under the circumstances. The results
of these estimates form the basis for making judgments about the carrying
values of assets and liabilities as well as identifying and assessing the
accounting treatment with respect to commitments and liabilities. Actual
results may differ from the estimates and assumptions used in the financial
statements and related notes.

Listed below are certain
significant estimates and assumptions related to the preparation of the
consolidated financial statements:

Product WarrantyThe Company provides
limited warranties on certain of its products, for varying periods.  Generally, the warranty periods range from
90 days to one year. However, some products carry extended warranties of
seven-year, ten-year, and lifetime warranties.
The Company records an accrued liability and reduction in sales for
estimated future warranty claims based upon historical experience and
managements estimate of the level of future claims.  Changes in the estimated amounts recognized in prior years are
recorded as an adjustment to the accrued liability and  sales in the current year.  A reconciliation of the liability is as
follows:

|                    |  |      |       |      |   |       |   |   |       |  
|------------------- |  | ---- | ----- | ---- | - | ----- | - | - | ----- | -
|In Thousands        |  | 2007 |       | 2006 |   | 2005  |  
|                    |  |      |       |      |   |       |   |   |       |  
|                    |  |      |       |      |   |       |   |   |       |  
|Beginning
  balance |  | $    | 1,141 |      | $ | 1,043 |   | $ | 1,298 |  
|Additions           |  |      | 621   |      |   | 560   |   |   | 472   |  
|Deductions          |  |      | (554  | )    |   | (462  | ) |   | (727  | )
|                    |  |      |       |      |   |       |   |   |       |  
|Ending balance      |  | $    | 1,208 |      | $ | 1,141 |   | $ | 1,043 |  
|                    |  |      |       |      |   |       |   |   |       |  

40

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ESCALADE,
INCORPORATED ANDSUBSIDIARIES
Notes to Consolidated Financial Statements

Inventory Valuation ReservesThe Company evaluates
inventory for obsolescence and excess quantities based on demand forecasts
based on  specified time frames; usually
one year. The demand forecast is based on historical usage, sales forecasts and
current as well as anticipated market conditions. All amounts in excess of the
demand forecast are deemed to be excess or obsolete and a reserve is
established based on the anticipated net realizable value. A reconciliation of
the reserve is as follows:

|                    |  |      |       |      |   |        |   |   |        |  
|------------------- |  | ---- | ----- | ---- | - | ------ | - | - | ------ | -
|In Thousands        |  | 2007 |       | 2006 |   | 2005   |  
|                    |  |      |       |      |   |        |   |   |        |  
|                    |  |      |       |      |   |        |   |   |        |  
|Beginning
  balance |  | $    | 2,668 |      | $ | 3,867  |   | $ | 6,223  |  
|Additions           |  |      | 1,418 |      |   | 669    |   |   | 763    |  
|Deductions          |  |      | (513  | )    |   | (1,868 | ) |   | (3,119 | )
|                    |  |      |       |      |   |        |   |   |        |  
|Ending balance      |  | $    | 3,573 |      | $ | 2,668  |   | $ | 3,867  |  
|                    |  |      |       |      |   |        |   |   |        |  

Allowance for Doubtful AccountsThe Company provides
an allowance for doubtful accounts based upon a review of outstanding
receivables, historical collection information and existing economic
conditions.  Accounts receivable are
ordinarily due between 30 and 60 days after the issuance of the invoice.  Accounts are considered delinquent when more
than 90 days past due.  Delinquent
receivables are reserved or written off based on individual credit evaluation
and specific circumstances of the customer. A reconciliation of the allowance
is as follows:

|                    |  |      |       |      |   |       |   |   |        |  
|------------------- |  | ---- | ----- | ---- | - | ----- | - | - | ------ | -
|In Thousands        |  | 2007 |       | 2006 |   | 2005  |  
|                    |  |      |       |      |   |       |   |   |        |  
|                    |  |      |       |      |   |       |   |   |        |  
|Beginning
  balance |  | $    | 1,559 |      | $ | 1,544 |   | $ | 2,510  |  
|Additions           |  |      | 509   |      |   | 116   |   |   | 561    |  
|Deductions          |  |      | (981  | )    |   | (101  | ) |   | (1,527 | )
|                    |  |      |       |      |   |       |   |   |        |  
|Ending balance      |  | $    | 1,087 |      | $ | 1,559 |   | $ | 1,544  |  
|                    |  |      |       |      |   |       |   |   |        |  

Advertising SubsidiesThe Company enters agreements with certain retailers to
pay for direct advertising programs and/or provide in-store display units.
These agreements are not based on retailer purchase volumes and do not obligate
the retailer to continue carrying the Companys products. The Company
determines the value of the advertising services based on its own research and
history of providing such services. The Company expenses these costs in the
period in which they are incurred as a selling expense. A reconciliation of the liability is as follows:

|                    |  |      |        |      |   |        |   |   |        |  
|------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|In Thousands        |  | 2007 |        | 2006 |   | 2005   |  
|                    |  |      |        |      |   |        |   |   |        |  
|                    |  |      |        |      |   |        |   |   |        |  
|Beginning
  balance |  | $    | 1,246  |      | $ | 991    |   | $ | 725    |  
|Additions           |  |      | 1,458  |      |   | 1,828  |   |   | 1,579  |  
|Deductions          |  |      | (1,196 | )    |   | (1,573 | ) |   | (1,313 | )
|                    |  |      |        |      |   |        |   |   |        |  
|Ending balance      |  | $    | 1,508  |      | $ | 1,246  |   | $ | 991    |  
|                    |  |      |        |      |   |        |   |   |        |  

41

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ESCALADE,
INCORPORATED ANDSUBSIDIARIES
Notes to Consolidated Financial Statements

CO-OP AdvertisingThe Company offers co-operative advertising allowances to
certain retailers to encourage product promotions. These agreements are
typically based on a percentage of retailer purchases up to a maximum allowance
and the Company is never directly involved with the media provider. The Company
accrues the estimated cost of these programs based on the sales volume of the
retailer and historical trends. As costs are accrued they are recorded as a
reduction in sales. A reconciliation of the
liability is as follows:

|                    |  |      |        |      |   |        |   |   |        |  
|------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|In Thousands        |  | 2007 |        | 2006 |   | 2005   |  
|                    |  |      |        |      |   |        |   |   |        |  
|                    |  |      |        |      |   |        |   |   |        |  
|Beginning
  balance |  | $    | 3,622  |      | $ | 2,794  |   | $ | 3,545  |  
|Additions           |  |      | 4,070  |      |   | 4,484  |   |   | 4,081  |  
|Deductions          |  |      | (4,369 | )    |   | (3,656 | ) |   | (4,832 | )
|                    |  |      |        |      |   |        |   |   |        |  
|Ending balance      |  | $    | 3,323  |      | $ | 3,622  |   | $ | 2,794  |  
|                    |  |      |        |      |   |        |   |   |        |  

Volume RebatesThe Company has various rebate programs with its
retailers that are based on purchase volume. Typically these programs are based
on achieving specified sales volumes and the rebate is calculated as a
percentage of purchases. Based on the terms of the agreement, purchase levels
and historical trends the Company accrues the cost of these programs and
records the same as a reduction in sales. A
reconciliation of the liability is as follows:

|                    |  |      |        |      |   |        |   |   |        |  
|------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|In Thousands        |  | 2007 |        | 2006 |   | 2005   |  
|                    |  |      |        |      |   |        |   |   |        |  
|                    |  |      |        |      |   |        |   |   |        |  
|Beginning
  balance |  | $    | 1,612  |      | $ | 1,503  |   | $ | 3,419  |  
|Additions           |  |      | 1,913  |      |   | 2,044  |   |   | 2,150  |  
|Deductions          |  |      | (2,663 | )    |   | (1,935 | ) |   | (4,066 | )
|                    |  |      |        |      |   |        |   |   |        |  
|Ending balance      |  | $    | 862    |      | $ | 1,612  |   | $ | 1,503  |  
|                    |  |      |        |      |   |        |   |   |        |  

Catalog AllowancesA number of large office supply dealers operate through
catalogs distributed to businesses throughout the country. Product content is
decided by the dealer each time a new catalog is issued; typically once a year.
Catalog allowances are required by the dealer as an inducement to include the
Companys products. The allowance is based on a fixed cost per page and/or a
percentage of purchases by the dealer. The fixed portion of the allowance is
often paid when the catalog is distributed and is recognized in the period
incurred and the variable portion is accrued based on dealer purchases and
historical trends. Catalog allowances are recorded as a reduction in sales. A reconciliation of the liability is as
follows:

|                    |  |      |        |      |   |        |   |   |        |  
|------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|In Thousands        |  | 2007 |        | 2006 |   | 2005   |  
|                    |  |      |        |      |   |        |   |   |        |  
|                    |  |      |        |      |   |        |   |   |        |  
|Beginning
  balance |  | $    | 697    |      | $ | 1,040  |   | $ | 761    |  
|Additions           |  |      | 1,427  |      |   | 1,444  |   |   | 1,637  |  
|Deductions          |  |      | (1,675 | )    |   | (1,787 | ) |   | (1,358 | )
|                    |  |      |        |      |   |        |   |   |        |  
|Ending balance      |  | $    | 449    |      | $ | 697    |   | $ | 1,040  |  
|                    |  |      |        |      |   |        |   |   |        |  

42

---



ESCALADE,
INCORPORATED ANDSUBSIDIARIES
Notes to Consolidated Financial Statements

Note 3 
Accrued Liabilities

Accrued liabilities consist of the following:

|                                         |  |      |        |      |   |        | 
|---------------------------------------- |  | ---- | ------ | ---- | - | ------ | 
|In Thousands                             |  | 2007 |        | 2006 |  
|                                         |  |      |        |      |   |        | 
|                                         |  |      |        |      |   |        | 
|Employee compensation                    |  | $    | 8,589  |      | $ | 9,262  | 
|Customer related allowances and
accruals |  |      | 9,425  |      |   | 10,029 | 
|Other accrued items                      |  |      | 5,202  |      |   | 8,368  | 
|                                         |  |      |        |      |   |        | 
|                                         |  | $    | 23,216 |      | $ | 27,659 | 
|                                         |  |      |        |      |   |        | 

Note 4  Operating Leases

The Company leases warehouse and
office space under non-cancelable operating leases that expire at various dates
through 2011.  Terms of the leases,
including renewals, taxes, utilities, and maintenance, vary by lease.  Total rental expense included in the results
of operations relating to all leases was $1,817 thousand, $2,181 thousand, and
$1,275 thousand in 2007, 2006, and 2005, respectively.

At December 29, 2007, minimum
rental payments under non-cancelable leases with terms of more than one year
were as follows:

|             |  |        |       | 
|------------ |  | ------ | ----- | 
|In Thousands |  | Amount |      
|             |  |        |       | 
|             |  |        |       | 
|2008         |  | $      | 1,032 | 
|2009         |  |        | 509   | 
|2010         |  |        | 220   | 
|2011         |  |        | 152   | 
|             |  |        |       | 
|             |  | $      | 1,913 | 
|             |  |        |       | 

Note 5  Acquired Intangible Assets and Goodwill

The carrying basis and accumulated amortization of
recognized intangible assets are summarized in the following table:

|                         |  |                           |        |                            |   |                           |  |                            |        |  |   |       | 
|------------------------ |  | ------------------------- | ------ | -------------------------- | - | ------------------------- |  | -------------------------- | ------ |  | - | ----- | 
|                         |  | 2007                      |        | 2006                       |  
|                         |  |                          
|In Thousands             |  | Gross
  Carrying
  Amount |        | Accumulated
  Amortization |   | Gross
  Carrying
  Amount |  | Accumulated
  Amortization |       
|                         |  |                           |        |                            |   |                           |  |                            |        |  |   |       | 
|                         |  |                           |        |                            |   |                           |  |                            |        |  |   |       | 
|Patents                  |  | $                         | 22,369 |                            | $ | 7,264                     |  | $                          | 21,077 |  | $ | 4,924 | 
|Consulting
  agreements  |  |                           | 976    |                            |   | 976                       |  |                            | 976    |  |   | 956   | 
|Non-compete
  agreements |  |                           | 2,197  |                            |   | 1,858                     |  |                            | 2,072  |  |   | 1,746 | 
|Customer list            |  |                           | 1,589  |                            |   | 1,161                     |  |                            | 1,455  |  |   | 692   | 
|Trademarks               |  |                           | 5,262  |                            |   | 122                       |  |                            | 3,467  |  |   | 121   | 
|                         |  |                           |        |                            |   |                           |  |                            |        |  |   |       | 
|                         |  | $                         | 32,393 |                            | $ | 11,381                    |  | $                          | 29,047 |  | $ | 8,439 | 
|                         |  |                           |        |                            |   |                           |  |                            |        |  |   |       | 

Amortization expense was $2,869 thousand, $2,471
thousand and $1,169 thousand for 2007, 2006 and 2005, respectively.

43

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ESCALADE,
INCORPORATED ANDSUBSIDIARIES
Notes to Consolidated Financial Statements

Estimated future amortization expense for each
reporting segment is summarized in the following table:

|                |  |      |       |      |   |       |  |      |       |      |   |            |  |   |       |  |   |       | 
|--------------- |  | ---- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ---------- |  | - | ----- |  | - | ----- | 
|In Thousands    |  | 2008 |       | 2009 |   | 2010  |  | 2011 |       | 2012 |   | Thereafter | 
|                |  |      |       |      |   |       |  |      |       |      |   |            |  |   |       |  |   |       | 
|                |  |      |       |      |   |       |  |      |       |      |   |            |  |   |       |  |   |       | 
|Sporting Goods  |  | $    | 2,642 |      | $ | 2,442 |  | $    | 1,790 |      | $ | 1,748      |  | $ | 1,732 |  | $ | 5,263 | 
|Office Products |  |      | 195   |      |   | 60    |  |      |      |      |   |           |  |   |      |  |   |      | 
|                |  |      |       |      |   |       |  |      |       |      |   |            |  |   |       |  |   |       | 
|                |  | $    | 2,837 |      | $ | 2,502 |  | $    | 1,790 |      | $ | 1,748      |  | $ | 1,732 |  | $ | 5,263 | 
|                |  |      |       |      |   |       |  |      |       |      |   |            |  |   |       |  |   |       | 

The Company evaluates the
carrying value of its long-lived and intangible assets on an annual basis, or
whenever events and circumstances indicate that the carrying value of the
assets may be impaired. The Company determines impairment based on the assets
ability to generate cash flow greater than the carrying value of the asset,
using a discounted probability-weighted analysis. If projected discounted cash
flows are less than the carrying value of the asset, the asset is adjusted to
its fair value.

The changes in the carrying amount of goodwill were:

|                                          |  |                |        |                 |   |        |   |   |        |  
|----------------------------------------- |  | -------------- | ------ | --------------- | - | ------ | - | - | ------ | -
|In Thousands                              |  | Sporting Goods |        | Office Products |   | Total  |  
|                                          | 
|                                          |  |                |        |                 |   |        |   |   |        |  
|Balance at
  December 31, 2005            |  | $              | 7,151  |                 | $ | 10,006 |   | $ | 17,157 |  
|Acquisitions                              |  |                | 4,866  |                 |   | 2,319  |   |   | 7,185  |  
|Foreign currency
  translation adjustment |  |                |       |                 |   | 685    |   |   | 685    |  
|                                          |  |                |        |                 |   |        |   |   |        |  
|Balance at
  December 30, 2006            |  |                | 12,017 |                 |   | 13,010 |   |   | 25,027 |  
|Purchase price
  adjustment               |  |                |       |                 |   | (134   | ) |   | (134   | )
|Foreign currency
  translation adjustment |  |                |       |                 |   | 910    |   |   | 910    |  
|                                          |  |                |        |                 |   |        |   |   |        |  
|Balance at
  December 29, 2007            |  | $              | 12,017 |                 | $ | 13,786 |   | $ | 25,803 |  
|                                          |  |                |        |                 |   |        |   |   |        |  

Note 6 
Borrowings

Short-Term DebtShort-term debt at
fiscal year-ends was as follows:

|                           |  |      |        |      |   |        | 
|-------------------------- |  | ---- | ------ | ---- | - | ------ | 
|In
  Thousands             |  | 2007 |        | 2006 |  
|                           |  |      |        |      |   |        | 
|                           |  |      |        |      |   |        | 
|Revolving line
  of credit |  | $    | 13,033 |      | $ | 10,336 | 
|                           |  |      |        |      |   |        | 

The Companys wholly owned
subsidiary, Indian-Martin, Inc., has a revolving line of credit under which it
can borrow funds from time to time to purchase eligible accounts receivable
from the Companys operating subsidiaries which accounts are and will be
pledged to secure those borrowings.  At
December 29, 2007, this line of credit aggregated $30 million but was limited
to $29 million by the underlying accounts receivable balances pledged as
security collateral. At the companys option, borrowings can be made under the
banks prime interest rate minus 1.25% or LIBOR plus 1.38%. During 2007 and
2006, weighted average daily borrowings under this line were $15,795 thousand
and $15,374 thousand with effective interest rates of 6.9% for each respective
year.

44

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ESCALADE,
INCORPORATED ANDSUBSIDIARIES
Notes to Consolidated Financial Statements

Long-Term DebtLong-term debt at
fiscal year-ends was as follows:

|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |        |      |   |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | 
|In Thousands                                                                                                                                                                                                                                                                                                                                                                                               |  | 2007 |        | 2006 |  
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |        |      |   |        | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |        |      |   |        | 
|Revolving term loan of $30,000, the amount
  available under this revolving term loan is reduced by $5,000 annually
  starting May 31, 2008, with the balance due May 31, 2012.  At December 29, 2007, $10,000 had an
  interest rate of London Interbank Offered Rate (LIBOR) plus 1.00%, or 6.84%,
  and $3,504 had an interest rate of prime minus .375% or 6.50%, unsecured.                           |  | $    | 13,504 |      | $ | 17,934 | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |        |      |   |        | 
|Revolving term loan of Euro 3,000 (approximately
  $4,397 US Dollars), the balance is due May 31, 2012 and bears an interest
  rate of EURIBOR plus 1.50%, or 5.90% at December 29, 2007, unsecured                                                                                                                                                                                                        |  |      | 2,931  |      |   | 1,975  | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |        |      |   |        | 
|Mortgage payable (Wabash, Indiana Adjustable
  Rate Economic Development Revenue Refunding Bonds), annual installments are
  optional, interest varies with short-term rates and is adjustable weekly
  based on market conditions, maximum rate is 10.00%, rate at December 29, 2007
  is 3.7%, due September 2028, secured by plant facility, machinery and
  equipment, and a stand-by letter of credit |  |      | 2,700  |      |   | 2,700  | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |        |      |   |        | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |        |      |   |        | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      | 19,135 |      |   | 22,609 | 
|Portion classified as current                                                                                                                                                                                                                                                                                                                                                                              |  |      |       |      |   |       | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |        |      |   |        | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  | $    | 19,135 |      | $ | 22,609 | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |        |      |   |        | 

Maturities of long-term debt outstanding at December
29, 2007 are as follows:  $3,504
thousand in 2011 and $15,631 thousand in 2012 or thereafter.

The mortgages payable and term
loan agreements contain certain restrictive covenants, of which the more
significant include maintenance of specified net worth and maintenance of
specified ranges of debt service and leverage ratios.

Interest Rate Swap
AgreementIn May 2003, the Company entered into an interest rate
swap agreement having a notional amount of $10 million and a maturity date of
May 19, 2008. This swap agreement is designated as a cash flow hedge, and
effectively converts a portion of the Companys variable rate debt to fixed
rate debt with a weighted average interest rate of 5.08%. The Company entered
into this interest rate swap agreement to manage interest costs and cash flows
associated with variable interest rates, primarily short-term changes in LIBOR;
changes in the cash flows of the interest rate swap offset changes in the
interest payments on the covered portion of the Companys revolving debt.
During 2007, the Company recorded an after tax loss of $120 thousand in Other
Comprehensive Income (OCI) relating to this interest rate swap agreement. There
was no impact on net income due to ineffectiveness. The Companys exposure to
credit loss on its interest rate swap agreement in the event of non-performance
by the counterparty is believed to be remote due to the strong credit rating of
the counterparty.

45

---



ESCALADE,
INCORPORATED ANDSUBSIDIARIES
Notes to Consolidated Financial Statements

Note 7 
Earnings Per Share

The shares used in the computation of the Companys
basic and diluted earnings per common share are as follows:

|                                                                |  |      |        |      |  |        |  |  |        | 
|--------------------------------------------------------------- |  | ---- | ------ | ---- |  | ------ |  |  | ------ | 
|In Thousands                                                    |  | 2007 |        | 2006 |  | 2005   | 
|                                                               
|                                                                |  |      |        |      |  |        |  |  |        | 
|Weighted average
  common shares outstanding.                   |  |      | 12,901 |      |  | 13,012 |  |  | 13,055 | 
|Dilutive effect
  of stock options                              |  |      | 14     |      |  | 32     |  |  | 153    | 
|                                                                |  |      |        |      |  |        |  |  |        | 
|Weighted average
  common shares outstanding, assuming dilution |  |      | 12,915 |      |  | 13,044 |  |  | 13,208 | 
|                                                                |  |      |        |      |  |        |  |  |        | 
|                                                                |  |      |        |      |  |        |  |  |        | 
|Number of
  anti-dilutive stock options                         |  |      | 395    |      |  | 470    |  |  | 424    | 

Weighted average common shares outstanding, assuming
dilution, includes the incremental shares that would be issued upon the assumed
exercise of stock options outstanding.

Note 8 
Employee Benefit Plans

The Company has an employee
profit-sharing salary reduction plan, pursuant to the provisions of Section
401(k) of the Internal Revenue Code, for non-union employees.  The Companys contribution is a matching
percentage of the employee contribution as determined by the Board of Directors
annually.  The Companys expense for the
plan was $527 thousand, $579 thousand and $490 thousand for 2007, 2006 and
2005, respectively.

Note 9 
Deferred Compensation Plan

In October 1985, the Board of
Directors approved the adoption of a Contributory Deferred Compensation Plan
pursuant to which some recipients of incentive compensation could elect to
defer receipt thereof.  For each dollar
of deferred compensation, the Company provided a 75% matching amount.  All deferrals allowed under this plan have
been made and amounts deferred earn interest at the rate of 9%.  Plan balances  are not intended to be recognized for tax purposes
until receipt.
Participants have no vested rights in deferred amounts credited to their
accounts and are general creditors of the Company until such amounts are
actually paid.

Note 10 
Stock Compensation Plans

In April 2007, Shareholders
approved the Escalade, Incorporated 2007 Incentive Plan (2007 Inventive Plan),
which is an incentive plan for key employees, directors and consultants with
various equity-based incentives as described in the plan document. The 2007
Incentive Plan is a replacement for the 1997 Incentive Stock Option Plan and
the 1997 Director Stock Compensation and Option Plan which expired at the end
of April 2007. All options issued and outstanding under the expired plans will
remain in effect until exercised, expired or forfeited.

The 2007 Incentive Plan is
administered by the Board of Directors or a committee thereof, which is
authorized to determine, among other things, the key employees, directors or
consultants who will receive awards under the plan, the amount and type of
award, exercise prices or performance criteria, if applicable, and vesting
schedules. Subject to various restrictions contained in the plan document, the
total number of shares of common stock which may be issued pursuant to awards
under the Plan may not exceed 1,086,422 shares.

46

---



ESCALADE,
INCORPORATED ANDSUBSIDIARIES
Notes to Consolidated Financial Statements

Restricted Stock UnitsIn 2007, the Company
granted restricted stock units to certain officers and directors of the Company
at fair market value on the date of grant. The restricted stock units granted
to employees of the Company vest over three to four years and dependent on
certain market criteria. The restricted stock units granted to directors vest
over one to two years. All restricted stock units are payable in shares of the
Companys common stock upon vesting and are subject to forfeiture if on the
vesting date the employee is not employed or the director no longer holds a
position with the Company.

During 2007, the Company
issued 137,250 restricted stock units to employees and 12,442 restricted stock
units to directors. The following table presents a summary of non-vested
restricted stock units granted to employees and directors as of December 29,
2007, and changes during the year ended December 29, 2007:

|                                                          |  |                    |         |                                           |   |      | 
|--------------------------------------------------------- |  | ------------------ | ------- | ----------------------------------------- | - | ---- | 
|                                                          |  | Number of
  Shares |         | Weighted-
  Average Grant Date Fair Value
|                                                          |  |                   
|                                                          |  |                    |         |                                           |   |      | 
|Non-vested restricted stock units as of December
30, 2006 |  |                    |        |                                           |   |     | 
|Granted                                                   |  |                    | 149,692 |                                           | $ | 5.75 | 
|Vested                                                    |  |                    |        |                                           |   |     | 
|Forfeited                                                 |  |                    | (5,000  | )                                         | $ | 5.75 | 
|                                                          |  |                    |         |                                           |   |      | 
|Non-vested restricted stock units as of December
29, 2007 |  |                    | 144,692 |                                           | $ | 5.75 | 
|                                                          |  |                    |         |                                           |   |      | 

When vesting is dependent on
certain market criteria, the fair value of restricted stock units is determined
by the use of Monte Carlo techniques. The market price of the Companys stock
on the grant date is used to value restricted stock units where vesting is not
contingent on market criteria. In 2007, the Company recognized $200 thousand in
compensation expense related to restricted stock units and as of December 29,
2007, there was $632 thousand of unrecognized compensation expense related to
restricted stock units.

Stock OptionsBeginning January 1, 2006, the Company adopted the fair
value recognition provisions of Statement of Financial Accounting Standards
(SFAS) No. 123R, Share-Based Payment.Accordingly, after January 1, 2006, the
Company began expensing the fair value of stock options granted, modified,
repurchased or cancelled. Total compensation expense recorded in the income
statement for 2007 and 2006 relating to stock options was $480 thousand and
$588 thousand, respectively. The recognized tax benefit related thereto was $31
and $55 thousand for 2007 and 2006, respectively.

During 2007, the Company issued 6,524 Director Stock
Options at an option price of $9.35. These options are exercisable after April
24, 2008.

The following table summarizes
option activity for each of the three years ended 2007:

|     |  |                           |  |                          |  |         |  |             |         |  |  |  |  |        |  |  |  |  |        |  | 
|---- |  | ------------------------- |  | ------------------------ |  | ------- |  | ----------- | ------- |  |  |  |  | ------ |  |  |  |  | ------ |  | 
|     |  | Incentive
  Stock Options |  | Director
  Stock Options | 
|     |  | Granted                   |  | Outstanding              |  | Granted |  | Outstanding |        
|     |  |                           |  |                          |  |         |  |             |         |  |  |  | 
|     |  |                           |  |                          |  |         |  |             |         |  |  |  |  |        |  |  |  |  |        |  | 
|2007 |  |                           |  |                         |  |         |  |             | 417,850 |  |  |  |  | 6,524  |  |  |  |  | 28,493 |  | 
|2006 |  |                           |  | 197,500                  |  |         |  |             | 520,695 |  |  |  |  | 15,076 |  |  |  |  | 23,891 |  | 
|2005 |  |                           |  | 250,000                  |  |         |  |             | 713,324 |  |  |  |  | 2,767  |  |  |  |  | 17,245 |  | 

The fair value of each option
grant award is estimated on the grant date using the Black-Scholes-Merton
option valuation model using the following assumptions:

|                                                              |  |         |  |  |         |  |  |         | 
|------------------------------------------------------------- |  | ------- |  |  | ------- |  |  | ------- | 
|                                                              |  | 2007    |  |  | 2006    |  |  | 2005    | 
|                                                              |  |         |  |  |         |  |  |         | 
|                                                              |  |         |  |  |         |  |  |         | 
|Risk-free
  interest rates                                    |  | 4.35%   |  |  | 4.35%   |  |  | 3.77%   | 
|Dividend yields                                               |  | 2.26%   |  |  | 1.81%   |  |  | 1.20%   | 
|Volatility
  factors of expected market price of common stock |  | 42.6%   |  |  | 51.3%   |  |  | 53.8%   | 
|Weighted average
  expected life of the options               |  | 3 years |  |  | 4 years |  |  | 4 years | 

47

---



ESCALADE,
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The following table summarizes stock option transactions for the three
years ended 2007:

|                                                                 |  |        |         |                |  |                  |  |                |          |        |  |                   |  |   |         |   |  |                   | 
|---------------------------------------------------------------- |  | ------ | ------- | -------------- |  | ---------------- |  | -------------- | -------- | ------ |  | ----------------- |  | - | ------- | - |  | ----------------- | 
|                                                                 |  | 2007   |         | 2006           |  | 2005             | 
|                                                                 |  |        |         |                |  |                  | 
|                                                                 |  | Shares |         | Option
  Price |  | Shares           |  | Option
  Price |          | Shares |  | Option
  Price    | 
|                                                                 |  |        |         |                |  |                  |  |                |          |        |  |                   | 
|                                                                
|Outstanding at beginning of
  year                               |  |        | 544,586 |                |  | $6.99 to
  19.21 |  |                | 730,569  |        |  | $6.99 to
  19.21  |  |   | 578,930 |   |  | $6.99 to
  19.21  | 
|                                                                
|Issued during year                                               |  |        | 6,524   |                |  | $9.35            |  |                | 212,576  |        |  | $11.08 to
  11.26 |  |   | 252,767 |   |  | $13.40 to
  13.88 | 
|Canceled or expired                                              |  |        | (86,422 | )              |  |                  |  |                | (172,550 | )      |  |                   |  |   | (20,900 | ) |  |                   | 
|Exercised during year                                            |  |        | (18,345 | )              |  | $6.99 to 
  9.03 |  |                | (226,009 | )      |  | $3.60 to
  6.99   |  |   | (80,228 | ) |  | $2.42 to
  6.99   | 
|                                                                 |  |        |         |                |  |                  |  |                |          |        |  |                   |  |   |         |   |  |                   | 
|                                                                
|Outstanding at end of year                                       |  |        | 446,343 |                |  | $6.99 to
  19.21 |  |                | 544,586  |        |  | $6.99 to
  19.21  |  |   | 730,569 |   |  | $6.99 to
  19.21  | 
|                                                                 |  |        |         |                |  |                  |  |                |          |        |  |                   |  |   |         |   |  |                   | 
|                                                                
|Exercisable at end of year                                       |  |        | 307,694 |                |  |                  |  |                | 222,885  |        |  |                   |  |   | 376,502 |   |  |                   | 
|                                                                 |  |        |         |                |  |                  |  |                |          |        |  |                   |  |   |         |   |  |                   | 
|Weighted-average fair value of
  options granted during the year |  | $      | 2.70    |                |  |                  |  | $              | 4.32     |        |  |                   |  | $ | 5.61    |   |  |                   | 
|                                                                 |  |        |         |                |  |                  |  |                |          |        |  |                   |  |   |         |   |  |                   | 

The following
table summarizes information about stock options outstanding at December 29,
2007:

|                           |  |                     |         |                                                 |  |                                   |  |                    |       |                                   |  |         |  |   |       | 
|-------------------------- |  | ------------------- | ------- | ----------------------------------------------- |  | --------------------------------- |  | ------------------ | ----- | --------------------------------- |  | ------- |  | - | ----- | 
|                           |  | Options Outstanding |         | Options Exercisable                             | 
|                           |  |                     |         |                                                 | 
|Range of
  Exercise Prices |  | Number of
  Shares  |         | Weighted-Average
  Remaining
  Contractual Life |  | Weighted-Average
  Exercise Price |  | Number of
  Shares |       | Weighted-Average
  Exercise Price | 
|                           |  |                     |         |                                                 |  |                                   |  |                    |       |                                   | 
|                          
|$6.99 - $11.26             |  |                     | 194,850 |                                                 |  | 2.5 years                         |  | $                  | 10.10 |                                   |  | 110,701 |  | $ | 9.45  | 
|$13.40  $19.21            |  |                     | 251,493 |                                                 |  | 1.7 years                         |  | $                  | 15.68 |                                   |  | 196,993 |  | $ | 16.31 | 
|                           |  |                     |         |                                                 |  |                                   |  |                    |       |                                   |  |         |  |   |       | 
|                           |  |                     | 446,343 |                                                 |  |                                   |  |                    |       |                                   |  | 307,694 |  |   |       | 
|                           |  |                     |         |                                                 |  |                                   |  |                    |       |                                   |  |         |  |   |       | 

Prior to 2006,
the Company accounted for stock options under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock issued to Employees,
and related interpretations. As a result no stock-based employee compensation
costs are reflected in net income for 2005 because options granted had an
exercise price equal to the market value of the underlying common stock at the
grant date.

In anticipation of the effective date of SFAS 123R Share-Based
Payment (SFAS 123R) which requires the expensing of stock options
based on fair-value assessments, the Company elected in the fourth quarter of
fiscal 2005, to accelerate the vesting of 167,800 outstanding options where the
exercise price ($19.21 per share) exceeded the market price for the Companys
stock. This resulted in the immediate recognition of the pro-forma stock-based
employee compensation costs associated with these options. Accordingly, the
pro-forma compensation expense reported in the tables below reflects the
additional stock-based employee compensation expense associated with these
options.

48

---



ESCALADE,
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The following
table illustrates the effect on net income and earnings per share for 2005 if
the Company had applied the fair value provisions of FASB Statement No. 123, Accounting
for Stock-Based Compensation, to stock-based employee compensation:

|                                                                                                                         |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------ |  | - | ------ | -
|In Thousands Except Per Share
  Amounts                                                                                  |  |   | 2005   |  
|                                                                                                                         |  |   |        |  
|                                                                                                                         |  |   |        |  
|Net income, as reported                                                                                                  |  | $ | 12,916 |  
|Less: Total stock-based employee
  compensation cost determined under the fair value based method, net of income
  taxes |  |   | (1,823 | )
|                                                                                                                         |  |   |        |  
|Pro forma net income                                                                                                     |  | $ | 11,093 |  
|                                                                                                                         |  |   |        |  
|                                                                                                                         |  |   |        |  
|Earnings per share                                                                                                       |  |   |        |  
|Basicas reported                                                                                                        |  | $ | 0.99   |  
|                                                                                                                         |  |   |        |  
|Basicpro forma                                                                                                          |  | $ | 0.85   |  
|                                                                                                                         |  |   |        |  
|                                                                                                                         |  |   |        |  
|Dilutedas reported                                                                                                      |  | $ | 0.98   |  
|                                                                                                                         |  |   |        |  
|Dilutedpro forma                                                                                                        |  | $ | 0.84   |  
|                                                                                                                         |  |   |        |  

Note 11  Other
Comprehensive Income

The components
of other comprehensive income and related tax effects were as follows:

|                                                                                                                                                 |  |      |       |      |   |       |   |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----- | ---- | - | ----- | - | - | ------ | -
|In Thousands                                                                                                                                     |  | 2007 |       | 2006 |   | 2005  |  
|                                                                                                                                                 |  |      |       |      |   |       |  
|Change in net unrealized value of
  available-for-sale investments net of tax of $(85), $(185), and $52, in 2007,
  2006 and 2005, respectively. |  | $    | 128   |      | $ | 278   |   | $ | (78    | )
|Realization of previously unrealized gains
  on available-for-sale investments net of tax of $126                                                |  |      |      |      |   | (189  | ) |   |       |  
|Change in foreign currency translation
  adjustment                                                                                              |  |      | 2,333 |      |   | 2,405 |   |   | (3,893 | )
|Change in unrealized gain (loss) on
  interest rate swap agreement net of tax of $78, $(25), and $(245), in 2007,
  2006 and 2005, respectively. |  |      | (120  | )    |   | 38    |   |   | 368    |  
|                                                                                                                                                 |  |      |       |      |   |       |   |   |        |  
|                                                                                                                                                 |  | $    | 2,341 |      | $ | 2,532 |   | $ | (3,603 | )
|                                                                                                                                                 |  |      |       |      |   |       |   |   |        |  

The components
of accumulated other comprehensive income, net of tax, were as follows:

|                                                     |  |      |       |      |   |       |  |   |     | 
|---------------------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | - | --- | 
|In Thousands                                         |  | 2007 |       | 2006 |   | 2005  | 
|                                                     |  |      |       |      |   |       | 
|Accumulated
  gain on available for sale investments |  | $    | 320   |      | $ | 192   |  | $ | 103 | 
|Foreign
  currency translation adjustment            |  |      | 5,468 |      |   | 3,135 |  |   | 730 | 
|Unrealized
  gain on interest rate swap agreement    |  |      | 35    |      |   | 155   |  |   | 117 | 
|                                                     |  |      |       |      |   |       |  |   |     | 
|                                                     |  | $    | 5,823 |      | $ | 3,482 |  | $ | 950 | 
|                                                     |  |      |       |      |   |       |  |   |     | 

49

---



ESCALADE,
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Note 12  Provision
for Taxes

Income before
taxes and the provision for taxes consisted of the following:

|                               |  |      |        |      |   |        |  |   |        | 
|------------------------------ |  | ---- | ------ | ---- | - | ------ |  | - | ------ | 
|In Thousands                   |  | 2007 |        | 2006 |   | 2005   | 
|                               |  |      |        |      |   |        |  |   |        | 
|                               |  |      |        |      |   |        |  |   |        | 
|Income (loss) before taxes:    |  |      |        |      |   |        |  |   |        | 
|United States of America (USA) |  | $    | 10,482 |      | $ | 8,874  |  | $ | 16,066 | 
|Non USA                        |  |      | 3,740  |      |   | 2,587  |  |   | 3,193  | 
|                               |  |      |        |      |   |        |  |   |        | 
|                               |  | $    | 14,222 |      | $ | 11,461 |  | $ | 19,259 | 
|                               |  |      |        |      |   |        |  |   |        | 
|Provision for taxes:           |  |      |        |      |   |        |  |   |        | 
|Current                        |  |      |        |      |   |        |  |   |        | 
|Federal                        |  | $    | 3,745  |      | $ | 2,000  |  | $ | 4,580  | 
|State                          |  |      | 428    |      |   | 482    |  |   | 510    | 
|International                  |  |      | 510    |      |   | 48     |  |   | 840    | 
|                               |  |      |        |      |   |        |  |   |        | 
|                               |  |      | 4,683  |      |   | 2,530  |  |   | 5,930  | 
|                               |  |      |        |      |   |        |  |   |        | 
|Deferred                       |  |      |        |      |   |        |  |   |        | 
|Federal                        |  |      | 112    |      |   | 186    |  |   | 334    | 
|State                          |  |      | 30     |      |   | 108    |  |   | 79     | 
|International                  |  |      | 142    |      |   | 142    |  |   |       | 
|                               |  |      |        |      |   |        |  |   |        | 
|                               |  |      | 284    |      |   | 436    |  |   | 413    | 
|                               |  |      |        |      |   |        |  |   |        | 
|                               |  | $    | 4,967  |      | $ | 2,966  |  | $ | 6,343  | 
|                               |  |      |        |      |   |        |  |   |        | 

The Company
has not provided for USA deferred taxes or foreign withholding taxes on
undistributed earnings for non-USA subsidiaries where the Company intends to
reinvest these earnings indefinitely in operations outside the USA.

The provision
for income taxes was computed based on financial statement income. A
reconciliation of the provision for income taxes to the amount computed using
the statutory rate follows:

|                                                                                                            |  |      |       |      |   |       |   |   |       |  
|----------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | - | - | ----- | -
|In Thousands                                                                                                |  | 2007 |       | 2006 |   | 2005  |  
|                                                                                                            |  |      |       |      |   |       |  
|                                                                                                            |  |      |       |      |   |       |   |   |       |  
|Income tax at statutory rate                                                                                |  | $    | 4,835 |      | $ | 3,897 |   | $ | 6,548 |  
|Increase (decrease) in income
  tax resulting from                                                          |  |      |       |      |   |       |   |   |       |  
|Permanent differences (goodwill impairment,
  investment income, dividends, and captive insurance earnings) |  |      | (79   | )    |   | (79   | ) |   | (348  | )
|State tax expense, net of federal effect                                                                    |  |      | 302   |      |   | 390   |   |   | 386   |  
|Effect of foreign tax rates                                                                                 |  |      | (620  | )    |   | (689  | ) |   | (229  | )
|Research credit                                                                                             |  |      | (60   | )    |   | (120  | ) |   | (121  | )
|Foreign income repatriation (Section 956
  inclusion)                                                       |  |      | 1,035 |      |   |      |   |   |      |  
|Internal Revenue Service audit settlement                                                                   |  |      |      |      |   |      |   |   | 278   |  
|Other                                                                                                       |  |      | (446  | )    |   | (433  | ) |   | (171  | )
|                                                                                                            |  |      |       |      |   |       |   |   |       |  
|Recorded provision for income taxes                                                                         |  | $    | 4,967 |      | $ | 2,966 |   | $ | 6,343 |  
|                                                                                                            |  |      |       |      |   |       |   |   |       |  

50

---



ESCALADE,
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

In accordance with FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109 (FIN 48), which became effective
for the Company on December 31, 2006 the Company has recorded the following
changes in liabilities recorded for uncertain tax positions:

|                                             |  |                                          |     |  
|-------------------------------------------- |  | ---------------------------------------- | --- | -
|In Thousands                                 |  | Other non-current
  income tax liability |    
|                                             |  |                                          |    
|Balance as
  of December 31, 2006 (Adoption) |  | $                                        | 164 |  
|Additions for current year tax positions     |  |                                          | 6   |  
|Additions for prior year tax positions       |  |                                          |    |  
|Settlements                                  |  |                                          |    |  
|Reductions Settlements                       |  |                                          |    |  
|Reductions for prior year tax positions      |  |                                          | (52 | )
|                                             |  |                                          |     |  
|Balance as
  of December 29, 2007            |  | $                                        | 118 |  
|                                             |  |                                          |     |  

The components of the net deferred
tax assets are as follows:

|                                                         |  |      |        |      |   |        |  
|-------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | -
|In Thousands                                             |  | 2007 |        | 2006 |  
|                                                         |  |      |        |      |  
|Assets                                                   |  |      |        |      |   |        |  
|Employee benefits                                        |  | $    | 243    |      | $ | 707    |  
|Valuation reserves                                       |  |      | 1,261  |      |   | 598    |  
|Deferred compensation                                    |  |      | 424    |      |   | 412    |  
|Depreciation                                             |  |      | 689    |      |   | 779    |  
|Stock option expense                                     |  |      | 85     |      |   | 55     |  
|Net operating loss carry forward                         |  |      | 1,220  |      |   | 1,318  |  
|                                                         |  |      |        |      |   |        |  
|Total assets                                             |  |      | 3,922  |      |   | 3,869  |  
|                                                         |  |      |        |      |   |        |  
|                                                         |  |      |        |      |   |        |  
|Liabilities                                              |  |      |        |      |   |        |  
|Unrealized gain on sale of securities
available-for-sale |  |      | (208   | )    |   | (113   | )
|Unrealized equity investment income                      |  |      | (1,010 | )    |   | (984   | )
|Unrealized gain on interest rate swap
agreement          |  |      | (19    | )    |   | (84    | )
|Goodwill and intangible assets                           |  |      | (761   | )    |   | (492   | )
|                                                         |  |      |        |      |   |        |  
|Total liabilities                                        |  |      | (1,998 | )    |   | (1,673 | )
|                                                         |  |      |        |      |   |        |  
|                                                         |  |      |        |      |   |        |  
|Valuation Allowance                                      |  |      |        |      |   |        |  
|Beginning balance                                        |  |      | (1,211 | )    |   | (228   | )
|(Increase) decrease during period                        |  |      | 97     |      |   | (983   | )
|                                                         |  |      |        |      |   |        |  
|Ending balance                                           |  |      | (1,114 | )    |   | (1,211 | )
|                                                         |  |      |        |      |   |        |  
|                                                         |  | $    | 810    |      | $ | 985    |  
|                                                         |  |      |        |      |   |        |  

Deferred tax assets are
included in the consolidated balance sheets as follows:

|                                                  |  |      |       |      |   |     | 
|------------------------------------------------- |  | ---- | ----- | ---- | - | --- | 
|In Thousands                                      |  | 2007 |       | 2006 |  
|                                                  |  |      |       |      |  
|Deferred income tax asset - current               |  | $    | 1,399 |      | $ | 733 | 
|Deferred income tax asset (liability) 
long-term |  |      | (589  | )    |   | 252 | 
|                                                  |  |      |       |      |   |     | 
|                                                  |  | $    | 810   |      | $ | 985 | 
|                                                  |  |      |       |      |   |     | 

The
Company has a US federal unused net operating loss carry-forward of
approximately $270 thousand and state unused net operating losses of approximately
$14,165 thousand of which an estimated $14,165 thousand has been reserved as
the Company does not expect to be able to utilize it. All operating loss
carry-forwards expire in various amounts through 2021.

51

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ESCALADE,
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Note 13  Operating
Segment and Geographic Information

The following table presents
certain operating segment
information.

|                                                  |  |      |         |      |  |         |   |  |         |  
|------------------------------------------------- |  | ---- | ------- | ---- |  | ------- | - |  | ------- | -
|In Thousands                                      |  | 2007 |         | 2006 |  | 2005    |  
|                                                  |  |      |         |      |  |         |  
|                                                  |  |      |         |      |  |         |   |  |         |  
|Sporting Goods                                    |  |      |         |      |  |         |   |  |         |  
|Net revenue                                       |  |      | 129,788 |      |  | 136,733 |   |  | 120,996 |  
|Operating
  income                                |  |      | 7,745   |      |  | 7,835   |   |  | 12,288  |  
|Interest
  expense                                |  |      | 1,355   |      |  | 2,775   |   |  | 874     |  
|Provision
  for taxes                             |  |      | 3,005   |      |  | 1,975   |   |  | 4,154   |  
|Net income                                        |  |      | 5,341   |      |  | 3,562   |   |  | 7,386   |  
|Identifiable assets                               |  |      | 87,634  |      |  | 88,209  |   |  | 67,641  |  
|Non-marketable equity investments (equity method) |  |      |        |      |  |        |   |  |        |  
|Depreciation & amortization                       |  |      | 4,264   |      |  | 3,985   |   |  | 2,657   |  
|Capital
  expenditures                            |  |      | 1,325   |      |  | 1,843   |   |  | 7,403   |  
|                                                  |  |      |         |      |  |         |   |  |         |  
|Office Products                                   |  |      |         |      |  |         |   |  |         |  
|Net revenue                                       |  |      | 55,788  |      |  | 54,732  |   |  | 62,319  |  
|Operating income                                  |  |      | 8,809   |      |  | 8,131   |   |  | 8,679   |  
|Interest
  expense                                |  |      | 185     |      |  | 613     |   |  | 786     |  
|Provision
  for taxes                             |  |      | 2,810   |      |  | 2,423   |   |  | 2,432   |  
|Net income                                        |  |      | 5,617   |      |  | 5,095   |   |  | 5,683   |  
|Identifiable
  assets                             |  |      | 47,623  |      |  | 46,778  |   |  | 44,319  |  
|Non-marketable equity investments (equity method) |  |      | 772     |      |  | 712     |   |  | 662     |  
|Depreciation
  & amortization                     |  |      | 1,780   |      |  | 1,664   |   |  | 2,078   |  
|Capital expenditures                              |  |      | 1,062   |      |  | 840     |   |  | 992     |  
|                                                  |  |      |         |      |  |         |   |  |         |  
|All Other                                         |  |      |         |      |  |         |   |  |         |  
|Net revenue                                       |  |      |        |      |  |        |   |  |        |  
|Operating
  income                                |  |      | (3,486  | )    |  | (4,131  | ) |  | (2,262  | )
|Interest
  expense                                |  |      | 1,297   |      |  | (751    | ) |  | (178    | )
|Provision for taxes                               |  |      | (848    | )    |  | (1,432  | ) |  | (243    | )
|Net income                                        |  |      | (1,703  | )    |  | (162    | ) |  | (153    | )
|Identifiable
  assets                             |  |      | 16,759  |      |  | 15,728  |   |  | 12,900  |  
|Non-marketable equity investments (equity method) |  |      | 7,205   |      |  | 5,456   |   |  | 3,952   |  
|Depreciation
  & amortization                     |  |      |        |      |  |        |   |  |        |  
|Capital
  expenditures                            |  |      |        |      |  |        |   |  |        |  
|                                                  |  |      |         |      |  |         |   |  |         |  
|Total                                             |  |      |         |      |  |         |   |  |         |  
|Net Revenue                                       |  |      | 185,576 |      |  | 191,465 |   |  | 183,315 |  
|Operating
  income                                |  |      | 13,068  |      |  | 11,835  |   |  | 18,705  |  
|Interest
  expense                                |  |      | 2,837   |      |  | 2,637   |   |  | 1,482   |  
|Provision
  for taxes                             |  |      | 4,967   |      |  | 2,966   |   |  | 6,343   |  
|Net income                                        |  |      | 9,255   |      |  | 8,495   |   |  | 12,916  |  
|Identifiable assets                               |  |      | 152,016 |      |  | 150,715 |   |  | 124,860 |  
|Non-marketable equity investments (equity method) |  |      | 7,977   |      |  | 6,168   |   |  | 4,614   |  
|Depreciation
  & amortization                     |  |      | 6,044   |      |  | 5,649   |   |  | 4,735   |  
|Capital
  expenditures                            |  |      | 2,387   |      |  | 2,683   |   |  | 8,395   |  

Each operating segment is individually managed and
has separate financial results that are reviewed by the Companys management.
Each segment contains closely
related products that are unique to the particular segment. There were no changes to the composition of segments in
2007. The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.

The sporting goods segment consists of home entertainment products such
as pool tables and accessories; table tennis tables and accessories; soccer and
hockey tables; archery equipment and accessories; basketball goals; and
fitness, arcade and darting products. Customers include retailers, dealers and
wholesalers located throughout the United States and Europe.

52

---



ESCALADE,
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The office product segment consists of office machinery used in the
office and graphic arts environment. Products include data shredders; folding
machines; and paper trimmers and cutters. Customers include large office
product retailers, office machine dealers, and office supply catalogs.

The All Other segment
consists of general and administrative expenses not specifically related to the
operating business segments and includes investment income from equity
investments.

Interest expense is
allocated to operating segments based on working capital usage and the
provision for taxes is allocated based on a combined federal and state
statutory rate of 36% adjusted for actual taxes on foreign income. Permanent
tax adjustments and timing differences are included in the All Other segment.

Identifiable assets are principally those assets used in each segment.
The assets in the All Other segment are principally cash and cash equivalents;
deferred tax assets; marketable equity securities; and investments.

The Company has one customer in the sporting goods segment who
accounted for 18%, 19% and 22% of consolidated total revenues in 2007, 2006 and
2005, respectively. No other customers accounted for 10% or more of
consolidated revenues. Within the sporting goods segment this customer
accounted for 26%, 30% and 33% of total revenues.

As of December 29, 2007, approximately 120 employees of the Companys
labor force were covered by a collective bargaining agreement that expires
April 30, 2009.

Raw materials
for Escalades various product lines consist of wood, particleboard, slate,
standard grades of steel, steel tubing, plastic, vinyl, steel cables, fiberglass
and packaging. Escalade relies upon suppliers in Europe and Brazil for its
requirement of billiard balls and slate utilized in the production of home pool
tables and upon various Asian manufacturers for certain of its table tennis
needs and other items. Escalade sources some of its game table product line in
China.

Revenues by
geographic region/country were as follows:

|              |  |      |         |      |   |         |  |   |         | 
|------------- |  | ---- | ------- | ---- | - | ------- |  | - | ------- | 
|In Thousands  |  | 2007 |         | 2006 |   | 2005    | 
|              |  |      |         |      |   |         | 
|              |  |      |         |      |   |         |  |   |         | 
|North America |  | $    | 157,148 |      | $ | 162,207 |  | $ | 153,687 | 
|Europe        |  |      | 22,540  |      |   | 18,220  |  |   | 23,015  | 
|Other         |  |      | 5,888   |      |   | 11,038  |  |   | 6,613   | 
|              |  |      |         |      |   |         |  |   |         | 
|              |  | $    | 185,576 |      | $ | 191,465 |  | $ | 183,315 | 
|              |  |      |         |      |   |         |  |   |         | 

Revenues are
attributed to country based on location of customer and are for continuing
operations.

Identified
assets by geographic region/country were as follows:

|              |  |      |         |      |   |         |  |   |         | 
|------------- |  | ---- | ------- | ---- | - | ------- |  | - | ------- | 
|In Thousands  |  | 2007 |         | 2006 |   | 2005    | 
|              |  |      |         |      |   |         | 
|              |  |      |         |      |   |         |  |   |         | 
|North America |  | $    | 121,791 |      | $ | 122,325 |  | $ | 100,908 | 
|Europe        |  |      | 30,225  |      |   | 28,390  |  |   | 23,952  | 
|              |  |      |         |      |   |         |  |   |         | 
|              |  | $    | 152,016 |      | $ | 150,715 |  | $ | 124,860 | 
|              |  |      |         |      |   |         |  |   |         | 

53

---



ESCALADE,
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Note 14  Summary of
Quarterly Results

|                                                  |  |          |        |         |   |           |  |             |        |  |   |        | 
|------------------------------------------------- |  | -------- | ------ | ------- | - | --------- |  | ----------- | ------ |  | - | ------ | 
|In
  thousands, except per share data (unaudited) |  | March 24 |        | July 14 |   | October 6 |  | December 29 |       
|                                                  |  |          |        |         |   |           |  |             |       
|                                                  |  |          |        |         |   |           |  |             |        |  |   |        | 
|2007                                              |  |          |        |         |   |           |  |             |        |  |   |        | 
|Net
  sales                                       |  | $        | 33,467 |         | $ | 50,530    |  | $           | 60,687 |  | $ | 40,892 | 
|Operating income                                  |  |          | 1,847  |         |   | 3,780     |  |             | 5,812  |  |   | 1,629  | 
|Net
  income                                      |  |          | 1,097  |         |   | 2,435     |  |             | 3,131  |  |   | 2,592  | 
|Basic earnings per share                          |  | $        | 0.08   |         | $ | 0.19      |  | $           | 0.24   |  | $ | 0.20   | 
|                                                  |  |          |        |         |   |           |  |             |        |  |   |        | 
|                                                 
|In
  thousands, except per share data (unaudited) |  | March 25 |        | July 15 |   | October 7 |  | December 30 |       
|                                                  |  |          |        |         |   |           |  |             |       
|                                                  |  |          |        |         |   |           |  |             |        |  |   |        | 
|2006                                              |  |          |        |         |   |           |  |             |        |  |   |        | 
|Net
  sales                                       |  | $        | 32,800 |         | $ | 48,949    |  | $           | 65,583 |  | $ | 44,133 | 
|Operating income                                  |  |          | 2,182  |         |   | 2,087     |  |             | 4,994  |  |   | 2,572  | 
|Net
  income                                      |  |          | 1,724  |         |   | 1,188     |  |             | 2,992  |  |   | 2,591  | 
|Basic earnings per share                          |  | $        | 0.13   |         | $ | 0.09      |  | $           | 0.23   |  | $ | 0.20   | 

Note 15  Acquisitions

All of the Companys acquisitions have been accounted for using the
purchase method of accounting.

2007

In February 2007, the
Company purchased substantially all of the assets of Trophy Ridge, LLC, which
manufactures and sells premium archery accessories under the Trophy Ridge brand
name. The Trophy Ridge brand name has significant appeal in the sports
enthusiast market place and will be used to further expand distribution of the
Companys archery accessory products. The Trophy Ridge operation has been
relocated and consolidated into the Companys existing archery operations in
the Gainesville, Florida plant. The operating results of Trophy Ridge will be
included in the Sporting Goods segment results from the date of acquisition.
The purchase price of $3.8 million was paid in cash. Contingent on the
achievement of certain performance criteria, the Company may be obligated to
pay an addition $1.0 million over a two year period from the date of
acquisition. The estimated fair market value of the assets acquired as of the
date of acquisition is as follows:

|                              |  |        |       | 
|----------------------------- |  | ------ | ----- | 
|(Amounts in thousands)        |  | Amount |      
|                              |  |        |       | 
|Current assets                |  | $      | 1,083 | 
|Property, plant &
  equipment |  |        | 170   | 
|Other assets                  |  |        | 125   | 
|Patents & Trademarks          |  |        | 2,419 | 
|                              |  |        |       | 
|Net assets acquired           |  | $      | 3,797 | 
|                              |  |        |       | 

In December 2007, the
Company purchased substantially all of the assets of Piston Point, Inc. which
distributed a unique broadhead arrow point. The piston point arrow head will be
sold through the Companys Sporting Goods business. The total price of $512
thousand was paid in cash using the Companys revolving credit lines and was
primarily composed of patents related to the piston point arrow head.

54

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ESCALADE,
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

2006

In February 2006, the
Company purchased substantially all of the assets of Family Industries, Inc.,
which manufactures and sells premium quality residential playground systems
made from stained redwood under the WoodPlay brand. Combined with the
acquisition of the ChildLife product line in the first quarter of fiscal 2005,
this acquisition greatly enhances the breadth of the product offering and
expands the Companys potential customer base. Playground systems will continue
to be sold under both the Woodplay and ChildLife brand names, primarily through
specialty dealers. The operating results from this acquisition have been
included in the Sporting Goods business segment results since the date of
acquisition. The total price paid, which was paid in cash using the Companys
revolving credit lines, exceeded the estimated fair market value of the net
assets acquired resulting in $4.8 million in Goodwill. The Goodwill recorded
will be deductible for income tax purposes. The estimated fair market value of
the assets acquired and liabilities assumed as of the date of acquisition are
as follows:

|                              |  |        |       |  
|----------------------------- |  | ------ | ----- | -
|(All amounts in thousands)    |  | Amount |      
|                              |  |        |       |  
|Current assets                |  | $      | 2,865 |  
|Property, plant &
  equipment |  |        | 50    |  
|Other assets                  |  |        | 112   |  
|Goodwill                      |  |        | 4,767 |  
|                              |  |        |       |  
|Total assets acquired         |  |        | 7,794 |  
|                              |  |        |       |  
|Current liabilities           |  |        | (654  | )
|                              |  |        |       |  
|Net assets acquired           |  | $      | 7,140 |  
|                              |  |        |       |  

In April 2006, the Company
acquired all of the outstanding stock of Desmar Seguridad Y Archivo, S.L.
(Desmar), a distributor of office products located in Barcelona, Spain. The
Company acquired Desmar to solidify its presence in Spain. The operating
results from this acquisition have been included in the Office Products
business segment results since the acquisition date and the Company intends to
operate this acquisition as a wholly owned distributor from its existing
location. The total purchase price of EUR 1.9 million ($2.4 million) was paid
in cash and financed through the Companys current Euro debt facilities. The
purchase price exceeded the estimated fair market value of the assets acquired
resulting in Goodwill of $2.2 million. The Goodwill recorded will not be
deductible for income tax purposes. The estimated fair market value of the
assets acquired and liabilities assumed as of the date of acquisition are as
follows:

|                              |  |        |        |  
|----------------------------- |  | ------ | ------ | -
|(All amounts in thousands)    |  | Amount |       
|                              |  |        |        |  
|Current assets                |  | $      | 1,383  |  
|Property, plant &
  equipment |  |        | 177    |  
|Other assets                  |  |        | 493    |  
|Goodwill                      |  |        | 2,238  |  
|                              |  |        |        |  
|Total assets acquired         |  |        | 4,291  |  
|                              |  |        |        |  
|Current liabilities           |  |        | (1,913 | )
|                              |  |        |        |  
|Net assets acquired           |  | $      | 2,378  |  
|                              |  |        |        |  

In May 2006, the Company
acquired substantially all of the assets of Carolina Archery Products which
manufactures and distributes archery accessories. This acquisition expands the
Companys product offerings in archery accessories and provides the Company
with valuable technology rights that will be used to enhance its competitive
position in the market place. The operating results from this acquisition have
been included in the Sporting Goods business segment results since the date of
acquisition. The total purchase price of $18.9 million was paid in cash and
financed through the Companys current debt facilities. The estimated fair
market value of the assets acquired and liabilities assumed as of the date of
acquisition are as follows:

|                              |  |        |        | 
|----------------------------- |  | ------ | ------ | 
|(All amounts in thousands)    |  | Amount |       
|                              |  |        |        | 
|Current assets                |  | $      | 3,358  | 
|Property, plant &
  equipment |  |        | 67     | 
|Patent & other
  intangibles  |  |        | 15,447 | 
|                              |  |        |        | 
|Net assets acquired           |  | $      | 18,872 | 
|                              |  |        |        | 

55

---



ESCALADE,
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The following table presents
unaudited pro forma financial information as if the Carolina Archery
acquisition described above had occurred at the beginning of the respective
periods:

|                                                              |  |                   |         |                   |   |         |  
|------------------------------------------------------------- |  | ----------------- | ------- | ----------------- | - | ------- | -
|                                                              |  | Year ended        |        
|                                                              |  |                   |        
|(In
  Thousands Except Per Share Amounts)                     |  | December 30, 2006 |         | December 31, 2005 |  
|                                                              |  |                   |         |                   |  
|                                                              |  |                   |         |                   |   |         |  
|Net revenue:                                                  |  |                   |         |                   |   |         |  
|Net revenue excluding Carolina Archery Products
  acquisition |  | $                 | 183,426 |                   | $ | 183,315 |  
|Net revenue of Carolina Archery Products                      |  |                   | 10,491  |                   |   | 8,500   |  
|Consolidation adjustment                                      |  |                   |        |                   |   |        |  
|                                                              |  |                   |         |                   |   |         |  
|Pro forma net revenues                                        |  | $                 | 193,917 |                   | $ | 191,815 |  
|                                                              |  |                   |         |                   |   |         |  
|                                                              |  |                   |         |                   |   |         |  
|Net income:                                                   |  |                   |         |                   |   |         |  
|Net income excluding Carolina Archery Products
  acquisition  |  | $                 | 7,679   |                   | $ | 12,916  |  
|Net income of Carolina Archery Products                       |  |                   | 2,558   |                   |   | 2,176   |  
|Consolidation adjustment                                      |  |                   | (940    | )                 |   | (796    | )
|                                                              |  |                   |         |                   |   |         |  
|Pro forma net income                                          |  | $                 | 9,297   |                   | $ | 14,330  |  
|                                                              |  |                   |         |                   |   |         |  
|                                                              |  |                   |         |                   |   |         |  
|Basic earning per share:                                      |  |                   |         |                   |   |         |  
|Excluding Carolina Archery Products
acquisition               |  | $                 | 0.59    |                   | $ | 0.99    |  
|Carolina Archery Products                                     |  |                   | 0.20    |                   |   | 0.17    |  
|Consolidation adjustment                                      |  |                   | (0.07   | )                 |   | (0.06   | )
|                                                              |  |                   |         |                   |   |         |  
|Pro forma basic earnings per share                            |  | $                 | 0.71    |                   | $ | 1.10    |  
|                                                              |  |                   |         |                   |   |         |  

The consolidation adjustment
in the above tables reflects the amortization of patents and other intangible
assets over the expected economic lives.

2005

On February
28, 2005, Escalade Sports acquired substantially all of the assets of
ChildLife, Inc., a manufacturer of premium residential play systems. The total
purchase price was $3,272 thousand and included inventory, a consulting
agreement, machinery and tooling, customer lists, and a noncompete agreement.
The customer lists and non-compete agreement are being amortized over a five
year period, and the consulting agreement is being amortized over a one year
period.

Note 16  Commitments
and Contingencies

The Company has obtained a letter of credit for the benefit of a
certain mortgage holder. At December 29, 2007, the balance of the letter of
credit was $2,734 thousand. It is to be used in the event of a default in
either interest or principal payments.

The Company is involved in litigation arising in the normal course of
its business. The Company does not believe that the disposition or ultimate
resolution of existing claims or lawsuits will have a material adverse effect
on the business or financial condition of the Company.

56

---



ESCALADE,
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The Company has entered into various agreements whereby it is required
to make royalty and license payments. At December 29, 2007, the Company had
future estimated minimum non-cancelable royalty and license payments as follows:

|                  |  |        |     | 
|----------------- |  | ------ | --- | 
|In Thousands      |  | Amount |    
|                  |  |        |    
|                  |  |        |     | 
|2008              |  | $      | 642 | 
|2012 and
  beyond |  |        | 100 | 
|                  |  |        |     | 
|                  |  | $      | 742 | 
|                  |  |        |     | 

57

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ESCALADE,
INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                                      |                |  |  | 
|------------------------------------- | -------------- |  |  | 
|ESCALADE, INCORPORATED                |               
|                                      |               
|By:                                   |               
|                                      |               
|/s/ Robert. Keller                    | March 11, 2008
|Robert J. Keller                      |               
|President and Chief Executive Officer |               

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

|                                        |  |                                                                                                 |  |               
|--------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | --------------
|/s/ Robert E. Griffin                   |  | Chairman and Director                                                                           |  | March 11, 2008
|Robert E. Griffin                       |  |                                                                                                 |  |               
|                                        |  |                                                                                                 |  |               
|/s/ Blaine E. Matthews, Jr.             |  | Director                                                                                        |  | March 11, 2008
|Blaine E. Matthews, Jr.                 |  |                                                                                                 |  |               
|                                        |  |                                                                                                 |  |               
|/s/ Edward E. Williams                  |  | Director                                                                                        |  | March 11, 2008
|Edward E. Williams                      |  |                                                                                                 |  |               
|                                        |  |                                                                                                 |  |               
|/s/ Richard D. White                    |  | Director                                                                                        |  | March 11, 2008
|Richard D. White                        |  |                                                                                                 |  |               
|                                        |  |                                                                                                 |  |               
|/s/ George Savitsky                     |  | Director                                                                                        |  | March 11, 2008
|George Savitsky                         |  |                                                                                                 |  |               
|                                        |  |                                                                                                 |  |               
|/s/ Richard Baalmann                    |  | Director                                                                                        |  | March 11, 2008
|Richard Baalmann                        |  |                                                                                                 |  |               
|                                        |  |                                                                                                 |  |               
|/s/ Robert J. Keller
  Robert J. Keller |  | President and Chief Executive Officer (Principal Executive Officer)                             |  | March 11, 2008
|                                        |  |                                                                                                 |  |               
|/s/ Terry Frandsen
  Terry Frandsen     |  | Chief Financial Officer, Secretary and Treasurer (Principal Financial
  and Accounting Officer) |  | March 11, 2008

58

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